Business presentation
Group 4
By- Mohineesh,Aksh,Amogh & Tarun
7.5 Government policies to
achieve macroeconomic
objectives.
-
Fiscal policy
Expansionary fiscal
policy
Contractionary fiscal
policy
-
Supply side policy
Fiscal policy
Fiscal policy refers to the
government's use of taxation
and spending to influence the
economy, aiming to achieve
certain economic objectives
such as controlling inflation,
stimulating economic growth,
and reducing unemployment.
FISCAL POLICY
Expansionary Fiscal Policy: Government increases spending and/or
decreases taxes to stimulate economic growth during a recession.
Expansionary Fiscal Policy Example:
- Government increases spending on infrastructure projects like building
roads or schools.
- Government decreases taxes for individuals and businesses, allowing
them to have more money to spend or invest.
Contractionary Fiscal Policy: Government reduces spending and/or
increases taxes to cool down an overheated economy and control
inflation.
Contractionary Fiscal Policy Example:
- Government reduces spending on public services or projects.
- Government increases taxes on individuals and businesses, reducing
their disposable income and spending power
Fiscal policy summary
Government policy
Reduce inflation and slow down
economic growth
Impact on business
Fiscal policy
Raise direct taxes
Consumers disposable income
fall, so demand for products falls.
The impact on businesses
depends on income elasticity of
demand for their products
Raise indirect taxes
Retail prices of the taxed products
increase. The impact on demand
depends on price elasticities.
Reduce government spending
Businesses selling products
directly to the government
experience a reduction in demand.
Supply Side Policy
Supply-side policy is a set of measures
aimed at boosting the economy by
focusing on improving the production
side, like cutting taxes for businesses to
encourage investment or reducing
regulations to make it easier to start
businesses.
The effect of supply side
policy
Reducing rates of income tax:
Reducing rates of income tax:
-
High rates of income tax discourage entrepreneurs from setting up new businesses.
Low tax rates can encourage enterprise and increase incentives to work.
Reducing the rate of corporation tax (profit tax):
Reducing rate of corporation tax ( profit tax):
-
Lowering the tax that companies pay on their profits.
Lowering corporation tax from 25% to 20% encouraged businesses to expand their operations
and hire more employees.
Increasing labour market flexibility and labour
productivity:
●
simplifying hiring and firing processes, can lead to higher productivity.
By hiring additional workers during busy seasons if it knows it can
adjust its workforce easily when demand slows down.
●
Spending on infrastructure projects
●
reducing regulatory barriers and encouraging
entrepreneurship.
●
Question
●
How do supply-side policies aim to improve the long-term performance
of an economy? ( 8 marks)
●
Explain how supply-side policies like tax cuts or deregulation can impact
a country's economy. Use examples to illustrate your points? (12 marks)