Assignment:
Government policy with respect to business
This essay discusses government policies with respect to businesses. Previously, it was considered that government policies had no impact on businesses, however, Keynes J. Proved after the Great Depression that government policies directly affected businesses and their operations. For instance, if government imposed heavy taxes on a certain sector the profit margins of the companies operating in the sector will go down, the investors would no more be interested in the business leading to collapse of the firm. Similarly, if the government provide grants and subsidies to firms then the particular sector will grow (Abdin, 2009).
Government policies with respect to businesses can be described from two point of views:
1. Political point of view- this includes description about local as well as international government policies that affect businesses.
2. Technical point of view- it covers the following: taxation, subsidies, interest rates, exchange rates.
The technical point of view covers the government policies more in depth and relevantly:
a. Taxation- taxation policy can greatly affect a business. High tax rates on raw materials would lead to local entrepreneurs being discouraged to use domestic production and switching to imported goods, while high tax rates on imported goods would encourage local production.
b. Interest rates- interest rates are controlled through fiscal policy of government. If the interest rates increase, people switch to saving than investments because saving in banks would make them earn a fixed interest. Therefore, business of the economy falls and vice versa.
c. Subsidies- subsidy is an incentive or government aid provided to businesses to promote growth. Increase in subsidies would lead to increase in production hence the particular sector grows.
d. Exchange rates- it is controlled by central bank on a country. When exchange rate of a country becomes stronger, imports become cheaper. This means local businesses will be forced to keep prices low in order to say competitive (Abdin, 2009).
References
Abdin, J. (2009). The Impact of Government Policies & World Order on Business. SSRN Electronic Journal.