Both fiscal and monetary policies influence a business organisation in many ways. When an organisation is influenced automatically stakeholders will be affected as well.
The Fiscal Policy: The measures that are taken by the government to stabilize the economy by increasing or decreasing the levels of taxes and adjusting the government’s expenses are called the fiscal policy. Reducing unemployment rate, addressing inflation borrowing and repaying stimulating economic growth are still part of the fiscal policy.
There are two types of fiscal policies: discretionary and automatic. The discretionary policy is decided by one-off changes. The automatic policy states that the economy can be stabilised by processes called fiscal drag and fiscal boost. The fiscal drag is the process that draws people into paying higher taxes as a result of a rising income.
The fiscal boost works in a similar way but in the opposite direction. If there is a decrease in the people’s income this process will make sure that people will pay taxes according to their new income.
The Monetary Policy: Influencing the economic activity through interest rates exchange rates, control of money supply and having control over banking lending and crediting is called the monetary policy.
The Bank of England’s Monetary Policy Committee (MPC) has the responsibility for monetary policy in the UK. Both the monetary policy and the fiscal policy impact businesses. The way that monetary policy impacts the business is through interest rates. If the interest rates go up, in case of a loan, the interest amount expected to be paid back will be higher therefore that business will have to cut some other expenses in order to cover the rise. On the other hand, if the interest rates go down, the business will experience a rise in profit as it will have to pay less interest on any loans
You May Also Find These Documents Helpful
-
Government can influence economic activity in two ways: monetary policy and fiscal policy. Fiscal policy affects the economy by changing the volume of government spending or taxes. Monetary policy is the regulation of the money supply, weight of gross of aggregate demand, which in turn influences the interest rate. There are two types of monetary policy: monetary expansion and monetary contraction. In the first case, the money supply is increased, in the second case on the contrary decreased. This essay reflects the ways the monetary expansion increases the money supply and it can also be seen how the rise in money supply affects the output. The present essay shows how Bank of England raises demand by such policy. The first part of essay shows the conventional ways of monetary policy and the second part reflects unconventional ways of influencing money supply. The significance of such policy will be proved by illustration of the monetary policy of Bank of England since 2009.…
- 1035 Words
- 5 Pages
Good Essays -
Monetary and fiscal policy are two ways in which governments attempt to achieve full level of employment, economic growth, and price stability. As you are aware, fiscal policy decisions are made by the President and Congress and demand the use of government spending and taxation to influence the economy; the monetary policies are maintained by the Federal Reserve.…
- 393 Words
- 2 Pages
Good Essays -
Gillespie (2010) describes fiscal policies as ‘changes in government spending, and the taxation and benefit system, to affect aggregate supply and demand in the economy’. On the other hand, monetary policies focus more on ‘interest rates and control over the amount of money in the economy’ to influence consumer spending and aggregate demand (AD). During the recession in 2008-9, the UK government used quantitative easing as part of the monetary policy. (Please see appendix 2) This was to increase the money within the banks for lending with an overall aim to increase aggregate demand. Governments’ perspectives differ in terms of the effectiveness of these two policies but in order to see how these policies affect business operations we can look at Tata Steel as an example and the steel industry in which it operates. In order to find a balance, governments may decide to employ elements of both fiscal and monetary…
- 3033 Words
- 13 Pages
Best Essays -
“Fiscal” means refers to government efforts to influence the economy through taxation and spending and “monetary policy” means Federal Reserve decisions that shape the economy by influencing interest rates and the supply of money.…
- 253 Words
- 2 Pages
Satisfactory Essays -
A discretionary fiscal policy refers to deliberate changes in the level of government spending, transfer payments or in tax rates in order to achieve macroeconomic goals such as full employment, price stability, and economic growth. An expansionary fiscal policy is designed to close a recessionary gap by changing aggregate expenditures such as an increase in government purchases or decreasing taxes. A contractionary fiscal policy might involve a reduction in government purchases or transfer payments, an increase in taxes, or a mix of all three to shift the aggregate demand curve to the left, which results a real boost in actual GDP level and helping the economy to recover. Automatic stabilisers refer to the tendency for a system of taxes and transfers, which are related to the level of income to automatically reduce the size of GDP fluctuations. When an economy has a contractionary output gap, there will be higher unemployment rate and consequently, less income tax collections and more people living on welfare benefits. The government at its discretion has tools such as the discretionary fiscal policy and automatic stabilisers to stabilise the economy. Non-discretionary fiscal policy can alter the levels of taxations revenue and transfer payment expenses recorded during times of real GDP growth and contractions.…
- 341 Words
- 2 Pages
Good Essays -
Fiscal policies refer to government efforts to influence the economy through taxation without representation and spending decisions that are designed to encourage growth. Monetary policies refer to actions that shape the economy by influencing interest rates and the supply of money. Politics plays a role by making taxes higher and by influencing interest rates.…
- 1790 Words
- 7 Pages
Powerful Essays -
Fiscal policy is the use of presidential and governmental spending and taxation to change or even repair what is or might be wrong in the economy. The basic idea behind many of the fiscal policy ideas were introduced by British economist John Maynard Keynes during the Great Depression (Heakal, n.d.). When the government decides on the goods and services it will be purchasing, the payments it distributes, or even the taxes it collects, it is participating in fiscal policy. The economic influence of any change in the government budget can and in theory will benefit people such as a tax cut for families with children, can help raise their disposable income (Weil, n.d.).…
- 1588 Words
- 7 Pages
Powerful Essays -
The fiscal policy is when the government changes its spending level and tax rates to monitor and influence their economy. The government will need to increase tax revenues to fund expenditure by increasing taxation by adjusting the income tax level.…
- 1547 Words
- 4 Pages
Better Essays -
Unit 38 Business and the Economic EnvironmentLearner name Assessor nameSameeha Hussain/Antonio ZarroDate unit issuedUnit DeadlineDate unit submitted by student27/01/1419/04/14 Criteria referenceTo achieve the criteria the evidence must show that the learner is able toAsst Task no. Assessor initial date when metPASS CRITERIAP1 Explain the effects of changes in the economic environment on a selected business P2 Identify how government policies impact on a selected business P3 Identify the impact of government spending on a selected businessP4 Explain how both fiscal and monetary policy decisions have affected a selected businessP5 Describe the impact of international factors on a selected business M1 Analyse the implications of government policies for a selected businessM2 Analyse the effects of fiscal and monetary policies for a selected business in terms of the market it operates inM3 Assess the impact of changes in the global and European business environment on a selected businessD1 Evaluate the impact of changes in the economic environment on a selected businessD2 Suggest and justify elements of fiscal and monetary policies that would help a selected business achieve its objectives Learner declaration I certify that the work submitted for this assignment is my own and research sources are fully acknowledged. Learner signature…
- 2180 Words
- 4 Pages
Powerful Essays -
It is a key consideration for government to decide which fiscal policy stance they will imply in Budget. In an expansionary policy, government aim to increase the level of economic activity by reducing revenue or increase expenditure, while in a contractionary fiscal policy aim the decrease economic activities by increasing revenue or increase expenditure…
- 1098 Words
- 5 Pages
Good Essays -
The fiscal policy is referred to the government decision on adjusting the spending levels, imposing taxes, and curbing inflation rates and boosting employment rate in the nation’s economy (‘ What is Fiscal Policy,” 2013). The monetary policy is controlled by the Federal Reserve System; the feds lower interest rates and increase the money supply (Kelly M. , 2012). The main goals of these policies are to control and promote growth in the economy. Every year the government meets to create a budget from the revenue received from taxes and fees to outline spending by the government. The government controls spending and increase taxes to get money out of the economy. The current fiscal policy could have negative affect that are not the same for everyone and may only affect the middle class, meaning they must pay higher taxes than the wealthier class of people(”Effect of Monetary…
- 1517 Words
- 7 Pages
Better Essays -
Expansionary Fiscal Policy is “A form of fiscal policy in which an increase in government purchases, a decrease in taxes, and/or an increase in transfer payments are used to correct the problems of a business-cycle contraction. The goal of expansionary fiscal policy is to close a recessionary gap, stimulate the economy, and decrease the unemployment rate,” (Web-pedia 1). When the government finds it necessary to use this policy there are necessary changes that need to be made to the taxes and government spending. Taxes are payments that the government takes from the economy in order to generate revenue. “Expansionary fiscal policy involves either a decrease of the income tax rates or a one-time rebate of taxes previously paid,” (Web-pedia 1). The decrees in taxes is usually preferred over raising government spending. When the government increases the spending the money goes to things that can be seen as important. These funds are spent to try to improve the economy. “About two-thirds of these funds were spent to produce or to purchase goods and services, such as defense, health care, highways, police, education, and courts,” (Amacher, R., Pate, J., 2012, CH. 9.3). The other one-third is put toward things like social security and welfare which have no exchange in goods and services. “The actual…
- 1019 Words
- 3 Pages
Better Essays -
Changes in federal taxes and purchases made by the government to achieve macroeconomic policy objectives are called fiscal policy (Hubbard and O’Brien, 2010).…
- 652 Words
- 3 Pages
Good Essays -
Macroeconomics explores trends in the national economy as a whole considering the study of the sum of individual economic factors. Industry is affected by factors such as GDP, unemployment, inflation, interest rates, and consumer price index. Fiscal (government) policy can help guide the economy toward a particular track without dictating a specific ending affecting tax, interest rates, and government spending (McConnell and Brue, 2005). Monetary policy attempts to achieve vast economic goals by regulating the supply of money through influencing outcomes like economic growth, inflation, and unemployment. Both policies attempt to control or regulate the economy. "If monetary policy is doing its job, the government should maintain a relatively…
- 2239 Words
- 9 Pages
Best Essays -
gratitude to my course instructor, for his supervision on this report. He has given a lot of…
- 3741 Words
- 15 Pages
Powerful Essays