In the present business environment governments have the power to change
and make laws, having a major role and influence on the business environment.
There are three levels of government; federal, state and local.
The federal government has power over such areas as; company law, income
tax, trade etc. State government has power over pollution, price controls, state
courts etc. and local government has power over rates, building approvals and
zoning. Through zoning the local government can decide where businesses are
located, or how many similar businesses should be built in a particular area.
The power of the government can have direct or indirect influences on the
business environment, encouraging or forcing businesses to comply. The federal
government has the greatest effect over the macroeconomic business environment
through the making of policies. The government has a number of economic
objectives. They aim to have consistent economic growth, low rates of inflation,
a sound international trading situation and low unemployment. To meet these
objectives the government must place policies such as fiscal, monetary, trade
and income policies.
Fiscal policy is the deliberate action of the government to change its
levels of income and expenditure, through the annual budget. By budgeting for a
deficit or surplus, the government will contract or expand the economy. e.g If
the government needed to cut unemployment they would budget for a deficit so
more money is injected and less money is taken from the economy by less taxes
and higher expenditure raising employment.
Monetary policy can also raise the level of economic activity. It
controls the availability of money by influencing the level of interest rates.
Lowering interest rates encourages people to spend and borrow while higher
interest rates encourages people to save and not borrow. By lowering interest
rates the government encourages... [continues]
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