Q8: Actions that governments can take during a national crisis

Question 1

Monetary Policy

Answer 1

Reduce Interest Rates:
- To encourage businesses to borrow money, they will have access to cash when sales are low, which can be invested in hiring staff

Quantitative easing:

• The Bank of England pumps money into the economy to encourage spending e.g., higher sales for the business

Question 2

Fiscal policy

Answer 2

Reduce rate of VAT:

• Can create a lower selling price to encourage increased spending
• How ever a small decrease in VAT may make little difference to persuade people to buy.

Reduce rates of income:

• To increase disposable income, thus encouraging consumer spending

Reduce Corporation tax:

• Meaning less tax is paid by businesses, thus increasing profit after tax which can be reinvested into the business

Question 3

Financial Assistance

Answer 3

Government Loans:

• Businesses can get access to finance, perhaps at lower rates of interest, to encourage businesses to invest in growth, employment, etc

Invest in businesses directly:

• E.g. Buying shares in companies, to safeguard jobs in important industries

Question 4

Government support schemes

Answer 4

Car scrappage scheme:

• The government provided a sum of money (Max £2000) to encourage consumers to buy a new car, to reverse the slump in car sales

Grants to Homeowners:

• To encourage spending on home improvements e.g., 50-100% off loft insulation or solar panels
• These schemes may help manufacturers and suppliers to sell more goods which may help them survive a recession