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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
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Monetary policy

  • Monetary policy is the process by which a country’s central bank (such as the Bank of England or the Federal Reserve in the US) manages the money supply and interest rates to influence the business activity in the economy

  • Monetary policy helps the government achieve its macroeconomic objectives

  • It aims to achieve

    • A low and stable rate of inflation

    • Low unemployment

    • Reduce business cycle fluctuations

    • Promote a stable economic environment for long-term growth

    • To control the level of exports and imports

Expansionary monetary policy

  • Monetary policy can be expansionary to generate economic growth

    • Expansionary policies include

      • Reducing interest rates: encourages borrowing and this helps to drive demand for goods and services

      • Increasing quantitative easing: increases the money supply in the economy which means families have more money to buy goods and services

      • Depreciating the exchange rate: encourages foreigners to buy goods and services from our country which can increase the supply of money

Example: expansionary monetary policy in the USA

The USA Federal Reserve Bank commits to an extra $60bn a month of quantitative easing

Effect on the economy

  • Commercial banks receive cash for their bonds so liquidity in the market increases

    • Commercial banks lower their lending rates, so consumers and firms borrow more, leading to increased consumption and investment and economic growth

Impact on macroeconomic aims

  • Economic growth increases

  • Inflation rises

  • Unemployment may fall as output is increasing and more workers are required

  • With higher price levels exports may decrease and with rising incomes, imports may increase

Contractionary monetary policy

  • Monetary policy can also be contractionary to slow down economic growth or reduce inflation

  • Contractionary policies include

    • Increasing interest rates: discourages borrowing and this helps to lower demand for goods and services

    • Decreasing or pausing quantitative easing: stops an increase to the money supply in the economy which means the amount of money in the economy is not increasing

    • Appreciating the exchange rate: discourages foreigners from buying goods and services from our country which can decrease the supply of money. Imports are also more expensive which means households have less money available for other purchases

Example: contractionary monetary policy in the UK

The Bank of England increases interest rates

Effect on the economy

  • Existing loan repayments for households become more expensive

    • Discretionary income reduces, so consumption decreases and total demand falls

  • Firms are less likely to borrow

    • Less investment in capital takes place, leading to lower growth

  • The exchange rate appreciates, so exports become more expensive and imports cheaper

    • Net exports reduce, leading to lower economic growth

Impact on macroeconomic aims

  • Economic growth slows down

  • Inflation eases

  • Unemployment may increase as output is falling and fewer workers are required

  • Both exports and imports reduce as exports are more expensive due to higher exchange rate and imports cheaper (but households have less income for imports)

The impact of monetary policy changes on business decisions

  • When a Central Bank changes the base rate of interest, it changes the price of borrowing for everyone, from families with mortgages to firms financing new equipment

  • Businesses take a range of decisions to keep borrowing affordable, steady sales, and stay ahead of rivals whenever rates change

Business decisions and interest rate changes

The Central Bank raises interest rates

The Central Bank cuts interest rates

  • Money becomes costly , so firms try to pay off debt or borrow less

  • Projects that require big loans (new factory, extra shops) may be delayed

  • Customers have less to spend on items typically purchased on credit, such as cars or furniture, so firms may offer smaller product ranges or discounts

  • Businesses may look to stabilise borrowing costs by moving from variable to fixed-rate loans

  • Cheap credit may mean delayed growth plans can now be implemented

  • Businesses may look to take out long-term loans before rates rise again

  • Companies offering credit may run cheap finance deals to tempt buyers

  • Businesses may stock up on extra inventory ready for higher sales

Fiscal policy

  • Fiscal Policy involves the use of government spending and taxation (revenue) to influence aggregate demand in the economy

Expansionary fiscal policy

  • Expansionary fiscal policy is intended to generate further economic growth

  • Policies include

    • Reducing taxes

    • Increasing government spending

Examples of expansionary fiscal policy

Policy

Impact on growth

Inflation

Unemployment

Cut corporation tax

  • Higher after-tax profits leads to more investment

  • Inflation increases as firms now have more money to spend

  • Unemployment decreases as businesses hire more workers to meet the increased demand for goods and services

Raise unemployment benefits

  • Higher household income leads to more consumption

  • Inflation increases as households now have more money to spend

  • Unemployment decreases as businesses hire more workers to meet the increased demand for goods and services

Contractionary fiscal policy

  • Contractionary fiscal policy is intended to slow down economic growth or reduce inflation

  • Policies include

    • Increasing taxes

    • Reducing government spending

Examples of contractionary fiscal policy

Policy

Impact on growth

Inflation

Unemployment

Raise income tax

  • Higher tax reduces households’ disposable income and consumption

↓

↑

Freeze public sector pay

  • Pay restraint lowers purchasing power, so consumer spending falls

↓

↑

Cut government spending

  • Government buys fewer goods and services, directly shrinking demand

↓

↑

The impact of fiscal policy change on business decisions

  • When the government changes tax rates or public-spending programmes, the potential for profit and demand shift

Business decisions when tax and government spending change

Government raises corporation taxes

Government cuts VAT for a short time

Government offers grants or subsidies

  • Firms delay or move investment abroad

  • Some split into smaller companies to stay in a lower-tax band

  • Prices or dividends may rise to cover the extra tax

  • Shops drop prices and run flash sales so people buy sooner

  • Extra stock is ordered and more staff put on the rota

  • Sales brought forward help cash-flow

  • Businesses invest where cash support is offered

  • Local joint ventures are set up if the grant insists on home-grown suppliers

  • Big public projects pull whole supply chains to the region

Supply-side policy

  • Supply-side policies try to help the economy produce more in the long run

  • They are focused on generating long term growth, lowering average price levels, and creating new jobs

The goals of supply side policy

Flowchart illustrating goals of supply-side policy: long-term growth, improving competition, increasing labour market flexibility, international competitiveness, incentives.
Goals of supply side policy

Interventionist supply-side policies

  • Interventionist supply-side policies require government intervention in order to increase the full employment level of output

    • These are mainly used to correct market failure

Explanation of interventionist supply-side policies

Supply-side policy

Explanation

Effects

Education and training

  • Increasing government spending on education raises the quality of the workforce, resulting in productivity improvements

  • Skills increase, leading to productivity improvements

    • The cost of production falls so selling prices can be lower, leading to improved international competitiveness

Improving quality, quantity and access to health care

  •  Increasing government spending on healthcare so that productivity improves

  • Healthier workforce can improve productivity

    • Output increases, so businesses can better meet demand, leading to business growth

Research and development

  • Increased government spending on innovation increases the supply of potential jobs in the economy

  • New industry emerges, leading to improved infrastructure

    • More jobs are created leading to long-term economic growth

Provision of infrastructure

  • Increased government spending on <span class=”popovers” data-content=”The things that make a