You should choose 1 or 2 of the following areas of government policy:
A. Fiscal Policy
B. Monetary Policy
C. Competition Policy
D. Environmental Policy
E. Labour Market Policy
There are a few reasons why governments may decide to intervene in the economy. The decisions governments take are called government policies and these may have a positive or negative effect on business operations. Governments put these policies in place with an overall aim to achieve an increase in income, encourage economic growth within the country and control aggregate demand. For example, governments may decide to take over manufacturing in order to maximise outputs or put stricter control and rules on protecting the environment. Other policies they can put in place can be to do with lowering employment within an economy by reducing benefits to …show more content…
Gillespie (2010) describes fiscal policies as ‘changes in government spending, and the taxation and benefit system, to affect aggregate supply and demand in the economy’. On the other hand, monetary policies focus more on ‘interest rates and control over the amount of money in the economy’ to influence consumer spending and aggregate demand (AD). During the recession in 2008-9, the UK government used quantitative easing as part of the monetary policy. (Please see appendix 2) This was to increase the money within the banks for lending with an overall aim to increase aggregate demand. Governments’ perspectives differ in terms of the effectiveness of these two policies but in order to see how these policies affect business operations we can look at Tata Steel as an example and the steel industry in which it operates. In order to find a balance, governments may decide to employ elements of both fiscal and monetary