Government objectives and policies Flashcards
What happens if income taxes were lowered
Leads to more spending in the economy. Businesses will respond by increasing production and expanding
How would businesses respond to higher corporation taxes
By reducing dividends or by cutting investment
Why would a government reduce corporation tax rates
To attract foreign businesses to locate operations in their country, this is because it creates jobs and improves living standards
Due to the financial crisis and other reasons, governments tried to constrain public spending. How were businesses affected by this?
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
How does the government affect business activity
Provision of infrastructure
Legislation
Consumer protection
Competition policy
Environmental legislation
Trade policy
Explain infrastructure provision
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
Why does the government implement legislation
Some businesses may not meet the needs of certain stakeholders or may even exploit them>
What is one of the roles of the government
Provide a legal framework in which businesses can operate and ensure that vulnerable groups are protected
What are the three areas where legislation has an impact on businesses
Consumer protection, competition policy, environmental legislation
Explain consumer protection
Consumers want to maximise benefits, recieve good customer service, recieve accurate and clear information about products, etc. This legislation protects consumers
What are some anti-competitive or restrictive practices
Market sharing, price fixing, increasing prices, raising barriers to entry
Explain competition policy
This prevents anti competitive practices and consumer exploitation by encouraging the growth of small firms, lower barriers to entry, introduce anti-competitive legislation
Explain environmental legislation
Governments pass laws to minimise harm to the environment due to business activity.
How does the government use trade policies to restrict trade
Protectionism, trade barriers, trade blocs
What are some things protectionism is used for
Protect jobs if the survival of domestic producers are threatened due to foreign producers and infant companies
Prevent dumping
Raise revenue from tariffs
What are some trade barriers
Tariffs
Quotas
Subsidies
Administrative barriers
What are some benefits to businesses of a trade blog
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
Disadvantages to businesses of a trading bloc
May protect insufficient businesses
May lead to animosity if benefits are not distributed equally
What happens if interest rates are high
Demand in the economy is likely to fall because it is expensive to borrow
What happens to businesses if interest rates are high
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
how does changes in interest rates change consumer behaviour
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
