Macro-policies and SMEs

Question 1

Definition of macro-policies

Answer 1

Macro-policies aim to manage aggregate demand through the use fiscal and monetary measures

Question 2

Why are macro policies important to SMEs?

Answer 2

They heavily impact upon their performances, but are never really taken into account by government when implementing them

Question 3

Outline the 3 factors of fiscal policy

Answer 3

Government spending (subsidies, grants, finance, investment), taxation (direct and indirect) and borrowing (loans for spending etc)

Question 4

What does monetary policy involve? Why would it affect a business

Answer 4

The adjustment of interest rates for financial loans = this affects the costs of a businesses external finance

Question 5

give examples of direct business taxes

Answer 5

corporation and profit tax

Question 6

how does taxation relate to utility of self-employment?

Answer 6

the way in which taxes are paid between employed (usually automatic) and self-employed (have to file them) determines the self employment rate either positively or negatively

Question 7

Evidence for lower tax increasing entrepreneurship

Answer 7

10% reduction in tax = 3% increase in self-employment (Folster, 2002)

Question 8

How does lowering tax benefit businesses?

Answer 8

Increases their net profits - this can also then be reinvested into the businesses to grow it, which overall encourages more self employment and start ups

Question 9

How could a rise in income tax be an argument for increasing entrepreneurship?

Answer 9

People will choose self-employment because they have to file their own taxes and so can avoid and evade their taxes. This means the financial benefits of self-employment over employment is greater

Question 10

Evidence for high tax increasing entrepreneurship

Answer 10

income tax increases = more self-employed (Schuetze, 2000)

Question 11

Definition of regulation

Answer 11

The legal and administrative rules created, applied and enforced by state institutions

Question 12

What are the two costs of regulation to a business?

Answer 12

Policy costs (the cost of complying with the regulation such as purchasing new equipment), administrative costs (the cost of accommodating regulation checks and paperwork)

Question 13

why is deregulation important for increasing start ups?

Answer 13

The burden of regulation faced by smaller businesses is greater than that faced by larger businesses. Deregulation will therefore increase business entry

Question 14

what countries is it easier to start and run a business?

Answer 14

English speaking countries (World bank, 2009)

Question 15

What are the wider benefits of deregulation?

Answer 15

easier entry and running of business increases macro economic growth (Djankov et al, 2006) and business growth

Question 16

Why are regulations beneficial for the business?

Answer 16

They enable ownership of land and capital. They also prevent copyright through patenting and intellectual property rights

Question 17

How else are regulations beneficial?

Answer 17

They help protect consumers through health and safety and fraud. They also have wider social benefits such as a greener environment

Question 18

What are competition policies designed to do?

Answer 18

Allow free and fair marketplace competition: SMEs are usually victims of this not happening.

Limit monopoly, oligopoly, duopoly power