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Unit 38 Business and the Economic Environment P4
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P4 explain how both fiscal and monetary policy decisions have affected a selected business
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UNIT 38: BUSINESS AND THE ECONOMIC ENVIRONEMTFISCAL AND MONETARY This is a further form of tax based on income. This is another policy used by the government
POLICY This builds up to enable people to claim in order to control the interest rates, money
benefits if they need to. It is also a form of supply or very short term borrowing and
These are government state pension for when they retire. Both exchange rates in the economy.
policies that are used in employers and employees have to pay this
the economy to control and influence the form of tax. Interest Rates are rates charged on a
economy and the factors in the economy. proportion of an amount that was lent,
3. Corporation Tax borrowed or deposited. These rates can
FISCAL POLICY increase or decrease at
This is tax on company profits. Most any time due to actions
This policy is the use of government revenue businesses attempt to pay the least amount of
collection (tax and tax cuts) and expenditure taking place in the
this tax as they possibly can. This can be done economy and it can
(spending) in order to influence the economy. by reinvesting into their business for the
This policy is based on an approach that was affect the business.
future.
first introduced by John Maynard Keynes an Money Supply is the
economist. He believed that by changing the Indirect Tax are those that are taken total amount of money available in the UK
levels of the taxation and government indirectly from individuals by being added by
economy during a certain point. This usually
spending, the government will be able to businesses to the prices that customers are
include currency in circulation and demand
influence the productivity levels. paying and includes:
deposit.
1. Value Added Tax (VAT)
Exchange Rates is the value of a currency
DIRECT AND INDIRECT TAX This is tax that is charged on most goods and within a country and how much it will be
services that business registered for VAT exchanged for within another country.
These are two different methods that the provide for customers.
government uses to earn income. Both policies affect PJ Hegarty and Sons in
2. Excise Duty different ways. The impact can be either
Direct Tax are paid by individuals and positive or negative and a business must have
businesses on their income and profit. This This is tax paid on particular goods such as plans in place to ensure that they are able to
includes: alcohol, tobacco and fuel. This is often added cope with these changes.
to goods that are luxuries or seen as harmful
1. Income Tax to health and the environment. It is designed A significant increase in income tax (from
to raise money but to also assist in decreasing 20%/40%/45% + 10-15%) can cause a
This is paid on all income. 20 per cent on
the demand for these items. decrease in disposable income
lower income individuals and 40 per cent for
of employees and customers.
higher earning individuals. The rises or 3. Air Passenger Duty This is because the tax percentage
reductions can impact the general level of
Tax paid by airlines per flights operated. It will decrease a lot from the gross
spending in the economy.
was once per person but changed in pay. Employees may work more
November 2009 to per flight. hours in order to sustain their
living and customer will be
purchasing less goods and service
2. National Insurance from the business because they do
MONETARY POLICY
P4: explain how both fiscal and monetary policy decisions have affected a selected business.
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