• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

How Government Fiscal Policy Affects A Business

Extracts from this document...


´╗┐Unit 38- D2 Fiscal policy is a policy that aims to control government spending using taxation to control the demand in the economy. AL-MURADs objective is to make profit and increase their sales. They want their business to survive. Direct and indirect taxation help AL-MURAD achieve their aims. Corporation tax is a tax on company profits. Most businesses try to pay the least amount of Corporation tax that they possibly can and this can be done through reinvesting back into their company for the future. AL-MURAD needs to pay less Corporation tax so their cost and revenue can increase. Value added Tax (VAT) is a tax that is charged on most goods and services that VAT registered businesses provide in the UK. It is also added to some goods that are brought into the UK form countries outside the European Union. AL-MURAD has to pay VAT. If the government reduces VAT, AL-MURAD can take the advantage of that as they import tiles from other countries. ...read more.


This can affect whether the external investors of AL-MURAD want to invest in UK or not. A fall in interest rate will affect the confidence of investors from overseas who want a larger return on their money. This can affect AL-MURAD as the external investors might not invest in AL-MURAD which can lead to AL-MURAD compromising with their costs. Reducing the exchange rate can occur by lowering interest rates or selling sterling. Raising interest rates and buying foreign currency will have the opposite effect as this will reduce aggregate demand and reduce inflation. During the low interest rate AL-MURAD will have more demand of products as people will be buying their products. They are more likely to even increase the cost. If AL-MURAD is making very high profit then they can even have a high labour cost which will be affordable for their business. Inflation is the measurement of the increase in prices. The target for the UK government is to keep inflation at around 2 per cent to support employment and economic growth. ...read more.


If inflation levels are high, the cost of wages is high and employers may try to control this by reducing their employee numbers, which then leads to a reduction in aggregate demand. This means that even AL-MURAD would tend to do so. They would even want to get rid of some of their workers as high employment would take their business to a loss site. AL-MURAD can face problems due to the employment rate being high as they will have to take on more workers as well. A good supply of money in the economy means that businesses should feel confident to invest in the future by taking on new employees. If more people are working, aggregate demand is likely to go up and, therefore, business confidence should go up again as more spending takes place. This will benefit AL-MURAD as their business confidence will rise and they will be able to spend more money on new machinery and other appliances and they will try to open new factories. But if the inflation was low and employment was high AL-MURAD will have to compromise on this as well, as they won?t have enough money in the business to spend. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Business Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Business Studies essays

  1. Unit 2 Managing Financial Resources and Decisions - notes and calculations

    decisions will not always be your own * The ROI will be expected to be higher than normal shareholders * Time Costs - Long difficult process to secure the investment * Pressure ? need to perform to give the ROI expected Bank Finance Options Overdraft ? a short term loan from the bank linked to your current account.

  2. How Government Spending Could Affect A Tile Business.

    an etc? if such borrowed money is not repaid then it can lead the country to fall into great debt this is when recession takes place. Fiscal and monetary policies: Monetary- it is a policy that aims to control the money supply in the economy.

  1. How Government Spending And The Multiplier Effect Affect A Business.

    businesses profits and people receiving jobs, customers not buying the products as the government will not spend money improving on the facilities and expanding on local areas leading no one to buy the tiles from AL-MURAD.

  2. How Environmental And Global Events Could Affect A Business.

    Here if countries from the middle east stop supplying oil then many countries from Asia and UK etc? begin to lose out on a lot so if Pakistan does not receive any oil then tiles cannot be made, there would be no oil for transportations to import tiles, this can

  1. How Government Fiscal Policy Affects A Business.

    This can help them cope with labour cost and increase the costs and make profit. Monetary policy is a policy that aims to control the money supply in the economy. Monetary policy works by influencing the rate of interest that is offered by the central bank within which is operating.

  2. Discuss how travel factors affect travel to three selected destinations

    Moreover, When people go to African countries they see things they wouldn?t of expected, E.g. South Africa starvations has effected South Africa for a number of years, when visiting some African countries, tourist should expect to see starving children and people drinking from dirty unfiltered water, men don?t allow women

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work