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government objectives and policies - Coggle Diagram
government objectives and policies
taxation and public spending
public spending
Countries can end up building up in massive debts and therefore to save money they have to control public spending
this is done by
Public sector organisations that supply services directly may get funding cuts.
Private sector businesses that work with public sector businesses may also lose out on contracts because of cut back in the public sector.
Cuts in pensions and other government payments may affect consumer spending as people with low income or that rely on government benefits will not have as much to spend
fiscal policy
when a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.
It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.
taxation
Taxation is when governments finance their expenditure by charging a percentage from individual citizens income and business profits.
used for
encourage or discourage economic decisions
use money generated by people of the state, to then provide public services such as scools, hospitals...
monetary policies
involves management of money supply and interest rate
The government control interest rates of a country to achieve economic objectives like cost of borrowing money and consumer spending.
government affect on business activity
Infrastructure provision
the government is responsible for developing and maintaining the country by providing roads, bridges, railway systems, power for individuals and businesses.
Competition policies
government try to promote competition and protect consumers from business exploitation.
Environmental legislation
business activity can have a negative impact on the environment so governments must ensure business take responsibility for their operations.
Legislation
the government has to set laws and regulations to protect businesses and customers
protectionism
Governments control international trade through trade policies, this is called protectionism. Trade barriers are used as a method of protectionism, trade barriers may include
Subsidy – giving financial support to local businesses- to achieve positive results
Quota – physical limit on the amount allowed to enter country
Tariffs – tax on imports
Administrative barriers – use strict laws and regulations to discourage imports.
a government can change how a business works
Introduce policies that have a direct impact on businesses such as giving subsidies to the business
changing the law making a strategie used by a business ilegal or obsolete by another new legal strategie
Change levels of government expenditure and taxation
Influence the rate of interest and exchange rates in the economy
effects on interest rates
increase in interest rates
people
• Could reduce confidence of borrowers
• Banks may be more willing to lend.
• Increased cost of bank loans.
• Increased cost of borrowing • Improved return for savers • Higher mortgage interest payments
economy
Government will see rising borrowing costs
• Unemployment - could rise
• Economic growth - will tend to be slower
• Inflation-will tend to be lower
• Currency will appreciate making exports less competitive, imports cheaper
decrease in interest rates
economy
• Currency will tend to depreciate making exports more competitive, imports expensive
• Could cause inflationary
pressure
• In theory, should boost
economic growth
• Investment likely to be more desirable
• Government will see relatively low borrowing
costs
people
• Asset prices could rise as cheap to borrow.
profitable for banks
• Low interest rates are less
• Lower cost of borrowing • Cheap mortgage payments • Low return for savers - low dividend payments. Decline in real value of savings (if inflation higher than interest rate)