Essay Monetary and Fiscal Policies

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Assignment 2: Monetary and Fiscal Policies
P3: Outline how both fiscal and monetary policy decisions have affected a selected business.
M2: Analyse the effects of fiscal and monetary policies for a selected business in terms of the market in which it operates
Tesco like every business will be affected by Monetary and Fiscal policies, whether this be directly or indirectly. Tesco PLC will be affected more indirectly by these policies and in this report I will explain how.
Fiscal Policy involves the Government changing the levels of Taxation and Government Spending in order to influence AD (Aggregate Demand) and therefore the level of economic activity.
Monetary Policy involves using interest rates or changes to money supply to …show more content…

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 will more often than not lose consumer interest.
Monetary policy
The interest rates instance of the monetary policy

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