A2 External Influences

1. A2 External Influences Government policies affecting business

2. Government Policy • Government seek to control the business environment to achieve a range of objectives. • These include economic policies such as fiscal and monetary policy • Student Task: Complete the worksheet using the textbook to learn about economic policies (page 390)

3. Governments key economic objectives • Encouraging economic growth • Controlling and reducing inflation • Maintaining a satisfactory level of employment • Achieving a satisfactory balance of payments • Maintaining a stable exchange rate

4. Fiscal Policy • The use of taxation and government expenditure to influence the economy

5. Monetary Policy • Controlling the money supply and the rate of interest in order to influence the level of spending and demand in the economy • Fiscal policy uses taxation and government expenditure, whilst monetary policy uses the supply of money and controlling interest rates to control the economy.

6. Answers to student questions 1.

7. Answers to student questions • 2. • Direct tax is taken from income whereas indirect is added to the value of goods.

8. Answers to student questions • 3. Increase spending power through: • Low interest rates • Tax cuts • Government spending has multiplier effect E.g. Building new hospital = employment for builders and eventually medical staff. They will have incomes which they will spend in the local economy. Suppliers will also receive money.

9. Answers to student questions • 4. Reduce spending power and demand through: • Higher interest rates = cost of borrowing, credit sales and mortgages  • Tax increase • Cut government expenditure • If left too long this may lead to low business investment and higher unemployment

10. A2 External Influences Government policies affecting business – Lesson 2

11. Other economic policies • Exchange rate policies - extent to which government will intervene by buying and selling currency or by changing interest rates. Aim is to influence international competitiveness. • Protectionism - Controls to restrict imports. • Supply-side policies - Focus on particular parts of the economy, the micro-economic level. Making sure all markets work efficiently to produce optimum output. E.g. improving training and reducing power of trade unions to make the labour market more efficient

12. Government Policies Privatisation

13. Privatisation • When state-run industries and state-owned assets are returned or sold to the private sector

14. Privatisation Video • Watch the video and answer the following questions: • What are the arguments for privatisation? • What are the arguments against privatisation? • Why was the privatisation of BT not initially a success? • What are the benefits to customers of BT’s privatisation?

15. Arguments for and against Privatisation • For: • Introduction of competition and reduction of bureaucracy. Public owned companies are not driven by profits and are therefore often less efficient. • Competition = more choice for the consumer = Quality  and prices . • Encourages individuals to become shareholders

16. Against: • Companies may exploit consumers by charging higher prices as now run for profit. State services are often run with the public in mind.m • Is it a consumers basic right to enjoy a high quality low cost service? • May become a privatised monopoly

17. BT • It initially faced difficulties when first privatised because it still acted as a monopolist and did not improve its efficiency. • It took deregulation and the introduction of competition to do this. • Consumers then benefited from increased competition through cheaper prices, more innovation and better quality of services.

18. Regulation and watchdogs • Success of privatisation depends on the degree of competition and regulation • Government set up watchdogs such as OFWAT (water supply) and OFTEL (telecoms) to prevent privatised monopolies exploiting their customers.Watchdogs must: • Monitor behaviour and price • Set performance standards • Allow or forbid entrants to the market

19. Government Policies Intervention Vs. Laissez-faire – Lesson 3

20. Intervention • Policy based on the belief that government should exert a strong influence on the economy, rather than allowing market forces to dictate conditions • E.g. • Economic policies (Fiscal + Monetary) • Support for new firms and rescue packages • Regional policies e.g. funding from EU to regenerate areas of high unemployment and social deprivation • Policies to influence exchange rates • Worker and consumer protection • Competition policies

21. Laissez-faire • Policy based on the belief that the free market will maximise business efficiency and consumer satisfaction • Government therefore tries to avoid interfering in the running of business or any part of the economy

22. Intervention Vs. Laissez-faire • Countries approach to this vary • Eastern European countries under a communist regime were very interventionist but now with political change are moving towards laissez-faire • The UK moved to a more laissez-faire approach with privatisation and deregulation in the 1980s and 1990s

23. Student Activity • Using the January 2004 exam paper you must answer question 1, 3 and 4. • Before attempting to answer each question you must brainstorm a plan of what theory and how you will analyse and evaluate the question. Do this in groups of 3/4 • Then attempt to answer each question based on the essay plan. • Remember Content, Application, Analysis, and Evaluation

24. Easter holiday homework • Complete all questions to the case studies provided. • These must be handed in on the first day back from the holiday.