Think of uncertainty in the stock market Uncertainty

Think of uncertainty in the stock market…. Uncertainty in the euro…. Uncertainty in the UK economy….

I was passing through London in 2008 and noticed something about the cranes in the skyline….

1. 3. 4 the gov and the economy. “external economic influences” – the 4 juggling balls…. .

Government Goals for Economy • High economic growth Boom Slump, Bust

• Is a recession 100% psychological? ? Complimentary Cycle Business Growth Consumer Spending

Government Goals for Economy • Complimentary Cycle Business Growth

Government Goals for Economy • Complimentary Cycle Consumer Spending

Government Goals for Economy • Vicious Cycle Business Growth Consumer Spending

Government Tools for Economy • Fiscal policy • Monetary policy • Supply Side

Government Tools for Economy • Fiscal policy – Government spending – Taxes – Laws

Fiscal policy: Taxes • Direct Taxes – Income Tax – Profits Tax (for corporations) • Indirect Taxes – Value Added Tax – Import Tariffs & Duties

So that’s fiscal policy…. . RECAP • Gov spending – in hope of encouraging complimentary cycle! • Mainly taxes… • Income tax? Rise, effect? • Corporation tax? Rise, effect? • VAT? Rise, effect? • Import tariffs? Rise, effect?

Monetary Policy Government actions using interest rates and money supply to affect the economy

Monetary policy Interest Rates Effects Costs down, profits up New expansion rises Consumers spend more

Monetary policy Interest Rates Effects Costs up, profits down New expansion slows Consumers spend less

Monetary Policy Interest Rates Exchange Rate People can earn more money holding your currency than others

Monetary Policy Interest Rates Sales, Profits Exchange Rate People can earn more money holding your currency than others Imports become cheaper So, local companies sell less But, costs fall if you use imports

And that’s monetary policy…. RECAP • In regards to? • What are interest rates? • High interest rates on loans…how does this influence business? • Low interest rates on loans…. how does this influence business? • Exchange rates…. .

Supply Side policies 1. Reduce government rules (regulations) (this is also called “deregulation”) 2. Increase competition 3. Privatisation 4. Improve training and education

Gov and the economy • • • 4 juggling balls? Unemployment Interest Rates Inflation Balance of Payments 3 gov economic policies? Fiscal…. . taxes and gov. spending Monetary…. . interest rates (inflation and exchange rates) Supply side……. – – Deregulation Increased competition Privatisation Education and training

[Latest economic data links…] • Exchange rate? http: //newsvote. bbc. co. uk/1/shared/fds/hi/business/market _data/currency/11/12/twelve_month. stm • Unemployment? http: //news. bbc. co. uk/1/hi/business/7789784. stm - diagram from the last time… • Interest rates? http: //news. bbc. co. uk/1/hi/business/7832714. stm • Inflation? http: //news. bbc. co. uk/1/hi/business/7844962. stm

BR articles…. • Business Review, November 2004: Business in the Next Recession • Business Review April 2006: Interpreting Economic Data • Further reading – p. 80 to 85 of book 2 (basically recaps 1. 3. 4) • Extension ………

Extension… • Peer assess E of S homework • Continue 1 on 1 feedback on the mock! • Extension – peer comparison of files, see if you are missing anything!