Business presentation Group 4 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)
