Government Intervention in the economy Aims l To

Government Intervention in the economy Aims: l. To identify methods of intervention l. Distinguish between monetary, fiscal policy and supply side policies and their impact on business l. To identify different types of taxation

FISCAL AND MONETARY POLICY FISCAL POLICY l l l Control of the economy by changes in taxation Income tax VAT Corporation Tax MONETARY POLICY Control of the economy by changes in interest rates. (This is normally done to achieve inflation target)

Impact of Fiscal and Monetary Policy on Business l l Multiplier effect (positive and negative) Rising interest rates stifle business investment Lack of demand may cause profits to fall and create unemployment High taxation leads to less disposable income therefore reducing demand

But……. l l Higher taxes raises revenue which can be spent in the economy Higher interest rates may attract foreign investment raising the value of the pound. Higher interest rates may help government achieve its inflation target. Both can be used to manipulate the trade cycle.

SUPPLY SIDE POLICIES l Government intervention to help stimulate competition in the economy.

Examples…. l l Gvt training inititatives Government grants for small businesses Government relocation packages Deregulation (eg making it easier for entrepreneurs to start small business, less administration etc…)

Recap… Can you… l identify methods of intervention ldistinguish between monetary, fiscal policy and supply side policies and their impact on business lidentify different types of taxation

Homework: l l Takes notes on privatisation: pp 359 Answer Q 3 page 367 “The Car Industry”