Government objectives and policies

Question 1

What happens if income taxes were lowered

Answer 1

Leads to more spending in the economy. Businesses will respond by increasing production and expanding

Question 2

How would businesses respond to higher corporation taxes

Answer 2

By reducing dividends or by cutting investment

Question 3

Why would a government reduce corporation tax rates

Answer 3

To attract foreign businesses to locate operations in their country, this is because it creates jobs and improves living standards

Question 4

Due to the financial crisis and other reasons, governments tried to constrain public spending. How were businesses affected by this?

Answer 4

If public sector organisations had their funding cut, employees would be made redundant, leading the lower income. This means that businesses had to produce less and had reduced profitability

Private sector businesses that rely on the public sector for business will be affected. If the government cuts spending or cancels projects, they will lose revenue

Cuts in government payments reduces spending power, this lowers demand in the economy

Question 5

How does the government affect business activity

Answer 5

Provision of infrastructure
Legislation
Consumer protection
Competition policy
Environmental legislation
Trade policy

Question 6

Explain infrastructure provision

Answer 6

Government projects that include developing infrastructure allows private sector organisations such as construction companies and their suppliers to benefit. Income for these employees increase, this increases demand in the economy, therefore production increases and revenue improves

Question 7

Why does the government implement legislation

Answer 7

Some businesses may not meet the needs of certain stakeholders or may even exploit them>

Question 8

What is one of the roles of the government

Answer 8

Provide a legal framework in which businesses can operate and ensure that vulnerable groups are protected

Question 9

What are the three areas where legislation has an impact on businesses

Answer 9

Consumer protection, competition policy, environmental legislation

Question 10

Explain consumer protection

Answer 10

Consumers want to maximise benefits, recieve good customer service, recieve accurate and clear information about products, etc. This legislation protects consumers

Question 11

What are some anti-competitive or restrictive practices

Answer 11

Market sharing, price fixing, increasing prices, raising barriers to entry

Question 12

Explain competition policy

Answer 12

This prevents anti competitive practices and consumer exploitation by encouraging the growth of small firms, lower barriers to entry, introduce anti-competitive legislation

Question 13

Explain environmental legislation

Answer 13

Governments pass laws to minimise harm to the environment due to business activity.

Question 14

How does the government use trade policies to restrict trade

Answer 14

Protectionism, trade barriers, trade blocs

Question 15

What are some things protectionism is used for

Answer 15

Protect jobs if the survival of domestic producers are threatened due to foreign producers and infant companies

Prevent dumping

Raise revenue from tariffs

Question 16

What are some trade barriers

Answer 16

Tariffs
Quotas
Subsidies
Administrative barriers

Question 17

What are some benefits to businesses of a trade blog

Answer 17

Access to wider markets
Lower cost (EOS)
Protection from multinationals from outside the bloc
Opportunity to specialise in the production of those goods and services

Question 18

Disadvantages to businesses of a trading bloc

Answer 18

May protect insufficient businesses
May lead to animosity if benefits are not distributed equally

Question 19

What happens if interest rates are high

Answer 19

Demand in the economy is likely to fall because it is expensive to borrow

Question 20

What happens to businesses if interest rates are high

Answer 20

When interest rates rise, costs rise for businesses that have already taken out a loan. This reduces profits, this cuts rewards for the owners and reduces funds for investment. This could negatively affect the growth of the business

The purchase of capital goods will be discouraged. They may be reluctant to invest in capital goods, technology and R&D. This affects their competitiveness as they may fail to keep up with technology. And their ability to grow as they may cancel investments

Higher interest rates lead to less demand in the economy

Question 21

how does changes in interest rates change consumer behaviour

Answer 21

Mortgages will increase, less disposable income

Demand for goods bought on loans will fall

If interest rates are low, then savers will earn less interest. This reduces their spending power