12 Government objectives and policies

Question 1

How do governments fund spending on public services?

Answer 1

Through taxation

Question 2

Define direct tax

Answer 2

Tax charged on income (income tax, corporation tax)

Question 3

Define indirect tax

Answer 3

Tax which is levied (imposed) on spending (e.g. VAT)

Question 4

Define fiscal policy

Answer 4

Using changes in taxation and government expidenture to manage the economy

Question 5

Explain the impact of lowered income tax on businesses

Answer 5

More spending in the economy

Because people are earning higher tax allowances
Leads to people having more disposable income to spend
Therefore more sales and demand for products in businesses

Question 6

How may businesses respond to lowered income tax

Answer 6

Increasing production and expanding (as there is more spending in the economy)

Question 7

Why are governments cutting rates of corporation tax

Answer 7

Attracts foreign businesses to locate operations in their countries

Because lower tax means lower total costs for the business
Leads to businesses being able to gain more profit
Therefore reinvest profits in the business (eg by employing more)

Question 8

Explain the impact of increased income tax on businesses

Answer 8

Less spending in the economy

Because people are earning less tax allowances
Leads to people having less disposable income to spend
Therefore less sales and less demand for products in businesses

Question 9

How may businesses respond to increased corporation tax

Answer 9

Cutting investments or reducing dividends

Question 10

Why have some governments tried to contrain levels of public spending?

Answer 10

Some countries built up massive debts as a result of the financial crisis in 2008

Question 11

How might constraints on public spending impact public and private sector businesses?

Answer 11

1. Public sector organisations that supply services directly may get funding cut - may be forced to lay off staff to cope
2. Private sector businesses that rely on public sector contracts will lose revenue
3. Cuts in pensions and other government payments mean that there is less public spending because there are people who rely on state benefits and therefore their spending power is reduced. This leads to lower demand in the economy

Question 12

How do constraints on public spending result in less demand in the economy?

Answer 12

Less demand in economy

Because public sector organisations that supply services directly may get their funding cut
Leads to being forced to lay off staff to cope with funding cuts
Therefore those laid off in the public sector will have less incomes

or

Because there are cuts in pensions and other government payments
Leads to less disposable income for those people who rely on state benefits
Therefore reduced spending power

Question 13

How do constraints on public spending impact private sector businesses that rely on public sector contracts? E.g. construction companies

Answer 13

Less revenue

Because government cancels projects (e.g. infrastructure work, producing military goods)
Leads to less work for these private sector businesses
Therefore less revenue paid from government

Question 14

Define lay off (staff)

Answer 14

Make employees redundant

Question 15

Define social security payments

Answer 15

Money taken by the British government from people’s wages to pay for the system of payments to people who are unemployed or ill

Question 16

How could infastructure provision impact businesses?

Answer 16

Private sector businesses will have big benefits since they are likely to get most of the work to do
Construction companies and their suppliers benefit
There will be multiplier effect

Question 17

Explain the purpose of legislation

Answer 17

Some businesses may not meet the needs of certain stakeholders, so they might go futher and exploit vunerable stakeholders.
One of the roles of the government is to provide a legal framework in which businesses can operate and ensure that vunerable groups are protected.

Question 18

Define anti-competitive practices/ restrictive trade practices

Answer 18

Attempts by firms to prevent or restrict competition

Question 19

Define barriers to entry

Answer 19

Restrictions that mean it is difficult for new firms to enter a market (e.g. spending huge amounts on marketing)

Question 20

State the consumer issues covered by legislation

Answer 20

The information given about products
Trading and age restrictions
Customer payment methods
Consumer rights
The way products are formed
The quality of products 
The safety of products
Prices

Question 21

Why should governments try to promote competition?

Answer 21

Markets can deliver lower prices, better quality goods and services and greater choice for consumers

Competition can create strong incentives for firms to be more efficient and to invest in innovation, thereby helping raise productivity growth

Question 22

How can governments promote competition?

Answer 22

Encourage the growth of small firms
Lower barriers to entry
Introduce anti-competitive legislation

Question 23

Define merger

Answer 23

Two or more businesses joining together to form one new firm

Question 24

How might governments prevent damage to the environment caused by businesses?

Answer 24

Pass new laws to minimise damage, e.g. recyclable packaging, preventing waste of resources

Question 25

Define protectionism (in terms of trade policy)

Answer 25

Use of trade barriers to protect domestic producers

Question 26

Why might protectionism be used?

Answer 26

1. Protect jobs if foreign competitors threaten the survival of domestic producers
2. Protect infant industries
3. Prevent dumping (where foreign producers sell goods below cost in domestic markets)
4. Raise revenue from tarrifs

Question 27

Define infant industries

Answer 27

New industries that are yet to be established

Question 28

Define dumping

Answer 28

Where a business sells goods in another country often below cost

Question 29

Define trade barriers

Answer 29

Measures designed to restrict trade

Question 30

State the different trade barriers governments can use

Answer 30

Tarrifs
Quota
Subsidy
Adminstrative barriers

Question 31

Define tariff

Answer 31

A tax on imports, which makes them more expensive

Question 32

Define quota

Answer 32

Physical limit on the quantity of imports allowed into a country

Question 33

Define subsidy

Answer 33

Financial support given to a domestic producer to help compete with overseas firms

Question 34

Define administrative barriers

Answer 34

Use of strict health and safety or environmental regulations and specifications to make importing more awkward

Question 35

Define trade bloc

Answer 35

Where a group of countries in the same geographical reigion sign a trade agreement to reduce or remove trade barriers

Question 36

State the benefits of trade blocs on businesses

Answer 36

1. Opportunity to specialise in the production of goods and services which they can produce more expertly or at a lower cost
2. Access to wider markets
3. Lower costs
4. Protection from large predatory multinationals from outside the trade bloc

Question 37

State the disadvantages of trade blocs

Answer 37

1. Might protect inefficient businesses

2. Can lead to conflict and tensions if benefits are not shared out fairy between countries

Question 38

Define interest

Answer 38

Price of borrowed money (and the reward to savers)

Question 39

Define monetary policy

Answer 39

Using changes in interest rates and the money supply to manage the economy

Question 40

State how higher interest rates impact businesses

Answer 40

1. Costs of borrowing increases - discourages purchase of capital goods
2. Demand in economy falls - consumers less willing to borrow to fund spending

Question 41

Define budget (in terms of the government)

Answer 41

An official statement a government makes about how much it intends to spend and what the rates of taxes will be for the next year or 6 months

Question 42

Define tax allowances

Answer 42

Part of income that is not taxed

Question 43

Define budgetary measures

Answer 43

Actions taken by the government to influence business and the economy