2.5.1 Government Spending, Taxation And Jnterest Rates

Question 1

How do governments have an effect on the business world

Answer 1

They will use policies to influence economic activity in order to maintain growth and limit negative factors such as high levels of inflation, unemployment

Question 2

Define interest rates

Answer 2

The cost of borrowing and reward for saving

Question 3

How do the government use interest rates to shape the current business climate

Answer 3

They manipulate interest rates to adjust the money in circulation and therefore influence spending and economic activity
- interest rates can also be a strategy to influence the value of a countries currency

Question 4

How does interest rates impact business

Answer 4

When high it leads to consumer spending falls
- inflation falls and stronger £ 
When it falls 
Consumer and business spending rises
- inflation may rise
- Weaker £

Question 5

What is the effect of expansionary policy

Answer 5

• reduces direct and indirect tax to increase disposable income
• increasing spending in areas, stimulates businesses and creates jobs

Question 6

How do contractionary policy affect business

Answer 6

• Increased direct and indirect taxes to slow down growth and reduce budget deficit
• reduce spending in areas in educatikn, pressure on inflation slows