For P4, learners must examine fiscal and monetary policies in relation to a chosen business. This will involve
analysing the possible impact of changes in the tax regime, as well as interest rate changes, on a selected
business’s operations. The range of possibilities is extensive and will vary o...
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In this assignment I’m going to explain how both fiscal and
monetary policy decisions have affected a selected business
Fiscal policy is when the government spend and use taxation to
influence the economy. When the government decides on the
goods and services it purchases, the transfer payments it
distributes, or the taxes it collects, it is engaging in fiscal policy.
An example of a fiscal policy in place is a tax cut for families
with children, will be beneficial as they have more disposable
income to spend on jaguar.
There are two types of fiscal policy, discretionary and automatic
the first one is Discretionary policy: which refers to policies
which are decided, and implemented, by one-off policy
changes.Discretionary Fiscal Policy and the second one is
automatic stabilisation, where the economy can be stabilised
by processes called fiscal drag and fiscal boost. If direct tax
rates are progressive, this means that the % of the income,
then a rapid increase in national income will be slowed down
automatically.
Discretionary fiscal policy is made more difficult due to lags in
recognizing the need for changed fiscal policy and the lags that
occur with enacting the changed fiscal policy. Implementing the
modified fiscal policy usually requires legislative action, which
takes a long time to implement. There is a concern that fiscal
policy changes may be untimely, however. For example, an
expansionary (money supply) fiscal policy may be legislated
when the economy is already recovering from a recession.
Fiscal policy does have an advantage over monetary policy in
the sense that increased government spending leads to an
immediate increase in aggregate demand. The effects of a tax
cut may be more moderate and have more of a time lag
because individuals may not immediately spend their increases
in disposable income that resulted from the tax cut.
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