Business - Government objectives and policies

taxation

• it helps the government fund its spending on public services

• if it was lowered, people would spend more and businesses may produce more

• if it increases, businesses may cut investments

why do governments cut rates of corporation tax?

• to help attract foreign businesses to locate operations in their country

• it will help to create new job opportunities and improve living standards

what happens when governments constrain levels of public spending?

• public sector organisations may get their fundings cut so employees will get lower income and the business can spend less

• private sector businesses that rely on public sector contracts will lose revenue

• for example if the government cancels an infrastructure project, the private sector business won’t be able to work

how can government infrastructure provision affect business activity?

• private sector businesses are likely to get the work of building the infrastructure

• so construction companies and their suppliers may benefit the most

how can government legislation affect business activity?

• without government intervention, some businesses may not meet the needs of certain stakeholders

• it ensures that vulnerable groups are protected

how can government consumer protection affect business activity?

• without government regulation, businesses may exploit consumers by increasing prices to higher levels, price fixing or by raising barriers to entry

• if a business breaks consumer laws, they may be fined

how can government competition policy affect business activity?

• it encourages the growth of small firms: and in result the market is less likely to be dominated by a larger firm

• lower barriers to entry: so more firms will join the market, and so more competition

• anti-competitive legislation: which protects monopolies and consumer exploitation

how can government environmental legislation affect business activity?

• business activity can have a negative impact on the environment

• so governments have laws to minimise environmental damage

how can government trade policy affect business activity?

• sometimes governments restrict trade to

• protect jobs since foreign competitors may threaten the survival of local producers

• to protect new industries that have yet to be established

• and to raise revenue from tariffs

what are some trade barriers the government can use to restrict trade?

• tariffs: a tax on imports

• quota: a physical limit on the amount allowed into the country

how do trade blocs benefit businesses?

• access to wider markets

• lower costs

• protection from large multinationals

what are the disadvantages of trade blocs?

• they might protect inefficient businesses

• lead to conflict if the benefits are not shared fairly

what is interest?

the cost of borrowing money and the reward to savers

what are the effects of higher interest rates on businesses?

• demand in the economy is likely to fall since borrowing will become more expensive

• costs will increase so reduced profit because consumers are less willing to borrow money

• businesses may be reluctant to invest because it is more expensive and lower levels of investments can reduce the growth

• if they cancel investment, they may not be able to keep up with new technology which can affect their competitiveness

what are the effects of lower interest rates on businesses?

• demand in the economy is likely to increase because it is cheaper to borrow

• businesses are likely to invest more and grow faster

what are the effects of interest rates on consumer spending?

• house owners with mortgages will be negatively affected since it is likely for the price to rise

• consumers are likely to spend less on non essential items like jewellery and new clothes