Businesses in the International Community

1. GOVERNMENT
ECONOMIC POLICIES
AND OBJECTIVES
AGUSTIN, MATIAS, MAX

2. GOVERNMENT OBJECTIVES
• Low inflation
• Low unemployment
• Economic growth
• Balance of payments between imports and exports.

3. INFLATION
High inflation causes:
• Worker’s wages to buy less goods than before.
• Prices of homemade goods to rise compared to foreign ones.
• Difficulty for businesses to expand.

4. UNEMPLOYMENT
A high rate of unemployment causes:
• Output levels to drop (unemployed people do not produce anything).
• More unemployed requiring social benefits and care from the government.

5. ECONOMIC GROWTH
A lack of economic growth causes:
• Unemployment, as output falls and fewer workers are needed.
• The standard of living to drop.
• Difficulty for businesses to expand.

6. BUSINESS CYCLE
• Growth or recovery occurs when GDP is rising, unemployment is falling and the
standards of living are high.
• Boom is caused by too much spending. Prices rise and the future of businesses
becomes uncertain.
• Recession is caused by too little spending. GDP falls and many workers lose their
jobs.
• Slump is like a long recession and is when unemployment will be at its peak.
Many businesses won’t survive this period.

8. BALANCE OF PAYMENT
• The difference between imports and exports of a country.
• Balance of payment deficit occurs when imports are higher than exports. This
causes a “run out” of foreign currencies by the country and leads to a drop in the
exchange rate.

9. TAXES
• Governments use taxes to fund their activities.
• They raise taxes in order to achieve their objectives.
• This greatly influences all the businesses in a country.
• Direct taxes – paid directly from incomes. (Income tax, profit tax).
• Indirect taxes – added to the prices of goods and taxpayers pay the tax as they
purchase the goods.

10. ECONOMIC POLICIES
• Fiscal policy – any change by the government in tax rates or public-sector
spending.
• Monetary policy – interest rates
• Supply side policies

11. TYPES OF TAXES
• Income tax – a tax on people’s income. It is set at a certain percentage of income,
although the rich usually tend to pay at a higher rate.
• Profit tax – a tax on the profits of businesses or companies.
• Indirect tax – a tax added to the price of all products bought by consumers.
• Import tariff – a special tax added to imported goods in order to reduce the
amount of imports and raise money for the government. Import quotas are also
used to limit the amount of a certain product that is imported.

12. GOVERNMENT SPENDING
Most governments spend their tax revenue on programmes like:
• Education
• Health
• Defence
• Law and order
• Transport – roads and railways
In order to boost economic growth, governments can spend more on these
programmes, creating more demand in the economy, more jobs and raising the
GDP.
Similarly, if they want to save money, governments can cut spending.

13. MONETARY POLICY (INTEREST RATES)
• Interest rate – cost of borrowing money.
• Usually fixed by government or the central bank via monetary policy.

14. SUPPLY SIDE POLICIES
• Attempt to improve the efficient supply of goods and services.
• Privatisation – selling public businesses to the private sector, in order to improve
business efficiency through the profit motive.
• Improving training and education – improving the skills of workers, especially in
industries where there is a shortage of skilled staff.
• Increase of competition in all industries – reducing government controls or acting
against monopolies.