Economic Issues: How Government Control Over The Economy Affects Business Activity And How Businesses May Respond (Copy)
Cheat Sheet: 6.1.2 Government Control over the Economy
Government Economic Objectives
| Objective | Explanation | Example |
|---|---|---|
| Economic Growth (GDP) | Increase total output of goods & services | Infrastructure projects boost GDP |
| Low Inflation | Keep prices stable to maintain purchasing power | Central bank controls money supply |
| Low Unemployment | Ensure more people have jobs | Government funds training schemes |
| Balance of Payments Stability | Maintain healthy imports vs. exports | Encourage exports through subsidies |
| Fair Income Distribution | Reduce inequality | Progressive taxation, welfare policies |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Impact of Government Tools on Businesses
| Tool | Change | Impact on Business |
|---|---|---|
| Taxes | Higher taxes → less disposable income, lower demand | Businesses may cut costs or reduce prices |
| Lower taxes → more consumer spending, higher demand | Retail sales increase | |
| Government Spending | Higher spending → more contracts & jobs | Construction firms benefit from road building |
| Lower spending → less demand for goods/services | Public sector suppliers lose contracts | |
| Interest Rates | Higher → borrowing costs ↑, demand ↓ | Firms delay investment; consumers cut spending |
| Lower → cheaper borrowing, demand ↑ | Firms expand, more consumer credit purchases |
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course
Business Responses
| Policy Change | Likely Business Response |
|---|---|
| Taxes ↑ | Reduce costs, relocate, cut prices, improve efficiency |
| Taxes ↓ | Expand production, increase investment |
| Gov. Spending ↑ | Target contracts, expand capacity |
| Gov. Spending ↓ | Diversify into private markets |
| Interest Rates ↑ | Postpone borrowing, focus on efficiency |
| Interest Rates ↓ | Invest in expansion, increase marketing |
Quick Revision Bullets
- Gov. aims: GDP growth, low inflation, low unemployment, balance of payments, fair income
- Taxes affect demand & investment
- Spending stimulates or reduces business opportunities
- Interest rates influence cost of borrowing & consumer spending
- Businesses must adapt strategy → efficiency, expansion, diversification
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Business Studies Full Scale Course