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...