Explain How Fiscal and Monetary Policy Decisions Have Affected a Selected Business

1448 Words6 Pages
The uk government sets monetary policy by adjusting the funds rate. This affects other short-term and long-term rates, including credit-card rates and mortgages. Governments define fiscal policy by setting taxation levels and writing legislation and regulation for everything from health care to the environment. Fiscal and monetary policy changes can affect businesses directly and indirectly, although competitive factors and management execution are also important factors.

Businesses

go through cycles of expansion, recession and recovery. Monetary and fiscal policies can affect the timing and length of these cycles. In the expansion phase, the economy grows, businesses add jobs and consumer spending increases. At some point, known as
…show more content…
Direct taxation includes income tax, national insurance and corporation tax. Income tax and National Insurance (NI) are similarly affecting the consumer and operate exactly the same giving the same economic effects. Income tax and NI are the two biggest source of tax revenue for the govt, changes to either of these directly relate to disposable income, which in effect changes consumer demand. Consumer demand is a major factor for Tesco as a business as and an increase would mean more sales and a higher income, a decrease would lead to lower sales and lower income for Tesco’s. A lesser income would mean smaller profits which in turn might mean lower investment and employment levels.
Corporation tax is a tax on company profits which means it directly affects TESCO. A cut in tax means Tesco will have more disposable profits which they could use in many ways. They could add to their reserves saving it for an emergency, or use the profits to finance investment, which will directly increase economic growth. Another use is reduce corporate debt, which will increase Tesco’s future profits. They could also give their shareholders bigger dividends, which could lead to bigger investments if shareholders invest their extra income back into Tesco.
Indirect Taxes relates to VAT and Excise duties. VAT is sales tax which is collected by the business (Tesco) and given to the government. Essentially if increased it would increase the price of Tesco’s products, this subsequently

More about Explain How Fiscal and Monetary Policy Decisions Have Affected a Selected Business

Get Access