(Government objectives and policies) Flashcards
What is fiscal policy?
Changes of taxation and government’s expenditure to manage the economy.
What are direct taxes?
Direct taxes are charged on income such as income taxes and corporation taxes.
What are indirect taxes?
Indirect taxes are levied on spending such as VAT.
What might government do to influence total demand in the economy?
Government might change the levels of taxation and government spending.
What will happen if income tax were lower and how business can respond?
If income taxes were lower, there will be more spending in the economy and business may respond by increasing production and expanding.
How business might respond to the higher corporation tax?
If there is higher corporation taxes, business may respond by lowering investments in business and reducing dividends.
How government tried to constrain levels of public spending and how it affect the businesses?
- They might lower their financial support on public services which result employees in those business to have lower income, decreasing their purchasing power, and the demand in economy will fall.
- They might also lower their financial support on certain government expenditure, this will particularly affect private enterprises which relied on these contracts. For instance, if the government lower their spending on defend, business which sell military products will negatively affected
- They might cut of freeze the payment to certain people such as pension and social security payment which will affect the purchasing power of people who rely on these government’s payments, reducing demands in the economy.
What is social security payments?
Money taken by UK’s government from people wages to pay for the system of payments to people who are ill or unemployed.
In most countries, who is responsible for developing and maintaining the nation’s key infrastructure?
Government
Who will get benefit by the heave expenditure on large scale projects by business and why?
Private sector business since they are likely to get most of the work
What can business do without government intervention?
Without government intervention, some business may not meet the needs of certain skate holder and exploits vulnerable groups.
How government take action to ensure that vulnerable groups are protected?
They provide legal framework which the business can operate in to ensure that vulnerable groups are protected.
What do consumers want?
Consumers want good quality services with fair prices and good customer services and information about products that are accurate and clear.
In which ways, some firms may exploit consumers?
- They might increase prices to higher level than in the competitive market
- They might use fixed pricing where number of firms agree to sell their products on fixed prices to avoid price competition
- They might restrict consumer choice by market sharing
- They might raise barriers to entry by spending large amount of money on marketing.
What does consumer legislation aim to do?
Consumer legislation cover variety of consumer issue and aimed to protect consumer from some unwanted practices from business to consumers
What will happen if businesses break consumer laws?
they may be fined and compensate consumers for any loss.
Why should government try to promote competition?
Because competition prevent anti-competitive practices and consumer’s exploitation.
What are the ways government can promote competition?
- By encouraging small firms to grow
- By lowering trade barriers to entry
- By introducing anti-competitive legislation
What will happen, if barriers to entry are lowered?
More firms will be able to join the market more easily which will boost the country’s economy growth.
What do anti-competitive legislation designed to do?
They tried to protect consumer from exploitation by monopolies.
Why might countries restrict trade?
Countries might restrict trade to
- Protect jobs when international competitor threatens survival of domestic business
- Prevent dumping
- Raise revenue from tariffs
- Protect infant industries
What is protectionism?
Use of trade barriers to protect domestic producers.
What is anti-competitive practices?
Attempts by firms to restrict or prevent competition
What is dumping?
Dumping is where the business sell goods in another country often below cost.
Dumping is where a business sell products to another countries often below cost.
Which kind of trade barriers to government use to restrict trade?
- Tariffs
- Quota
- Subsidy
- Administrative barriers - Safety or health and environmental regulation to make importing more difficult
What are the main benefits to businesses of trade blocs?
- Opportunity to specialize in the production of goods that the country can produce expertly and low cost
- Access to wider market for business
- To lower cost, since they can exploit economics of scales by selling more outputs to wider market
- Protect businesses from large predator multinational from outside the bloc.
What are the disadvantages of trading blocs?
They might protect inefficient businesses and lead to conflicts and tension if the benefits is not shared fairly between countries.
Why interest rate can change?
because it is directly controlled by the authorities.
What is monetary policy?
Using changes in interest rate and money supply to manage the economy.
What is quota and subsidy?
Quota - physical limit on the quantity of imports allowed into the country
Subsidy - Financial support given to domestic producers to help compete with overseas firms.
What is protectionism?
Use of trade barriers to protect domestic producers.
What will happen if the interest rate rise or fall?
When the interest rate raise, the demand in the economy will fall since it is more expensive to borrow money
When the interest rate fall, the demand in the economy will raise since it is cheaper to borrow money
Why high interest rate are bad for the businesses?
When the interest rate are high, the costs for businesses which have taken out loans will raise, which reduce the profit resulting to cut dividends and lower investments which interferes with the growth of business.
The purchasing of capital goods funded by borrowing is discourage as they are now more expensive, so, businesses will be reluctant to buy new machinery and there will be postponement of cancellation of investment projects which harm the growth of business and reduce competitiveness.
When the interest rate raise, it will negative impact business with the result of falling demand because customers are less willing to borrow money to fund spending.
Who will have bigger impact by changes in the exchange rate?
Business which have lots of debts.
How higher interest rate affect consumers spending?
Where there is higher interest rate, the house owners with mortgages will negatively impacted since most people’ mortgage raise which mean they will gain lower disposable income.
The demands of goods bought with borrowed money will fall when the interest rate raised as they are now more expensive, so, consumers will have less chance to spend on non-essential products or services such as entertainment service.
However, savers will benefit from higher interest rate because they will get more interest on their savings, consequently, increasing their purchasing power.
