BUSINESS AND MANAGEMENT MODULE 1 BUSINESS ORGANIZATIONS & ENVIRONMENT

Political Opportunities & Threats  Governments can choose to intervene in the markets if it wishes  US “bail out” of the financial markets in October is a prime example  Pros –Government intervention can present barriers to growth  Cons –Leaving businesses to their own fates can stimulate healthy competition –Foreign direct investment is attracted if government involvement is minimal

Fiscal Policy  Refers to the use of taxation and government spending policies  Direct taxation –Paid straight from income or profit  Indirect taxation –Paid on trade in goods and services  Progressive taxation –Proportion of tax paid increases with income

Fiscal Policy (continued)  Deflationary –Used when the economy is experiencing high rates of economic growth (needs to be slowed down) –Higher taxes; lower spending  Expansionary –Used to boost the economy –Tax cuts and increased public sector spending

Common Taxes  Income tax –Levy on personal income from wages, interest and dividends  Corporate tax –Levy on profits of a business  Sales tax –Taxes on individual expenditures  Capital gains tax –Tax on surplus made from investments  Excise tax –Taxes levied on “sin” goods such as tobacco and alcohol  Custom duties –Taxes paid on foreign imports

Monetary Policy  Designed to control the amount of spending and investment in an economy, by altering interest rates  Interest rates are the price of borrowed money  Higher interest rates makes borrowing money less attractive (higher costs of repayment)  Discretionary income is reduced

Impact of Interest Rates  Risk  Time  Administration  Expectations