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Competition and the Economic Environment

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Competition and the Economic Environment Assignment 2: Economic policy SHAN JI The economic change of the government would affect mainly about three parts: demand from customers, the costs of running a business and affect on workers and supplies. The economic role of the government will depend mainly on the political ideology and structures that prevail in the country. Government believed that the economic system could be directed through aggregate demand-with changes in fiscal policy being the most appropriate way of doing this. Government accepts responsibility for improving the economy. They with the market economy to exist, but will from time to time try to improve inflation, or employment, or trade etc. in recent years the government has used interest rates if they wish to stop inflation rising; tried to keep income tax down because they believe this helps with employment/jobs and helps to create new business. The government also try to encourage the exports of goods in order to attempts to keep the balance of trade in balance. The interest rate can be considered as the price of money. If you want to borrow money it is the percentage over and above the original loan that has to be paid back. This makes the interest rate a vital tool of economic management. A large amount of economic activity (both consumption and investment) ...read more.


Thirdly, if the local government, Birmingham, makes a substantial rise in its tax on business, DIXONS and CURRYS might decide close down a few shops in Birmingham and open new shops in other cities such as London, Edinburgh or Manchester. Because the increased tax on business may cause the sharp increasing of costs on business. In this case, the business has to obtain more profits than before in order to cover their costs. Through DIXONS and CURRYS both are very companies, if they open more shops will be cheaper than Birmingham, and then they will think that whether it's worthy to keep the shops in Birmingham or not. Normally, they don't mention much about the tax, but if the tax is much higher than other places. That means the price of the computers and TVs is much higher than other places. Then the consumers might go to other places to purchase. The supply is bigger than demand, that will cause the waste of goods. In business situation two, a newly set up sole trader in Birmingham selling relatively expensive skin and health care products. This business just have small amount of money to run the business. And they sell expensive products, if the interest rates are high, the shop might charge a higher price on their products. Then the consumers will adopt the quality of the products. They might think the products are overrated of their products. ...read more.


Because the business will take a long time to build and sell the houses. They can't pay back the interests to the bank immediately. So if the business can't sell the houses, the business will be closed down and the bank will make a loss on interests. When the customers purchase the houses, they usually go to the bank to use the mortgage of purchasing. The customers will take more money on the interests. Some people may not be able to afford the high interest rates. They might decide to buy smaller houses or another house. If the government make a rise on the income tax, people don't have enough money to spend. Then they will take a long term mortgage to purchase a house. The business might reduce the number of houses to build. And the business will pay the income tax when they get the profit, but it will take a long time. On the tax of business, the business will decide to reduce the money to spend to build the house. Some business might reduce the quality of the materials of the houses in order to reduce the costs. It will bring serious problem on quality. According above three situations, we can know how important the government uses the suitable economic role to control the businesses. In all words, government should use the fiscal policy, the monetary policy and the supply side policy to help and control the business in order to make economic growth. ...read more.

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