Government and economic influences on business. Page: 51. The impact of business activity on society. Advantages on society. Production of useful goods and services which people wish to buy Creation of jobs and income. These increase workers’ living standards
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Advantages on society
Inflation is the increase in the average price level of goods and services over time
Unemployment exists when people who are willing and able to work cannot find a job
Balance of Payment records the difference between a country’s exports and imports
Inflation occurs when prices rise. If there are rapid increase in inflation
Workers’ wages will not buy as many goods as before. This means that people’s Real Incomes will fall.
Prices of the goods produced will be higher than those in other countries.
Business will be unlikely to want to expand and create more jobs in the future.
What is it?
Gross Domestic Product – is the total value of output of goods and services in a country in one year
Growth – this is when GDP is rising, unemployment is generally falling and the country is enjoying higher living standards. Most businesses will do well at this time.
Governments will try to avoid the economy moving towards a recession or a slump, but will also want to reduce the chances of a boom. A boom will rapid inflation and higher business costs can often lead to the conditions that result in a recession.
The main way the government influences the economy is by using – Economic Polices:
How do these taxes affect business activity? We will look at four of the common taxes and there effects
Profit Tax or Corporation Tax
Import duties and Tariffs
This is a tax used by most governments. It is a tax on people’s incomes. Usually, the higher a person’s income the greater will be the amount of tax they have to pay to the government.
Profits Tax or Corporation Tax
This is the tax on the profits made by businesses - usually companies
How will an increase in this Tax effect businesses?
Indirect taxes, such as Value Added Tax (VAT), are added to the prices of the products to buy.
Import tariffs and quotas
Many governments try to reduce the import of products from other countries by putting special taxes on them. These are called duties or Import Tariffs and they raise money for the government.
Import Tariff: is a tax on imported product
Import Quota: Is a physical limit to the quantity of a product that can be imported
How would businesses in a country be affected if the government put tariffs on imports into the country?
Monetary Policy: is a change in interest rates by the government or central bank
An interest rate is the cost of borrowing money. In most countries the level of interest is fixed by the government or the central bank via Monetary Policy
What impact would higher interest rates, imposed by the government have on businesses in that country?
Firms with existing loans will have to pay more in interest to the banks. This will reduce their profits
Exchange Rate Appreciation is the rise in the value of a currency compared to other countries
How will a higher interest rates in one country encourage foreign banks and individuals?
What is exchange rate depreciation?
Are used by Governments to improve the efficient supply of goods and services in their country
Government uses certain policies to achieve this:
Improve Training and education
Governments tend to put policies into place that regulate what is advertised by businesses. To ensure that the consumer is protected. False advertisement of a Good or Service can have heavy penalties on a business
A monopoly is when one firm controls or dominates the market for a good or service.
Disadvantages of a Monopoly
Unfair Discrimination – what factors falls under this?
Is a legal meeting which considers workers’ complaints of unfair dismissal or discrimination at work
Contract of employment
Is a legal agreement between employer and employee listing the rights and responsibilities of workers
Advantages of a legal minimum wage
Governments can help business as well! – How?!?