Unit 38: Business and Economic Environment P4 M2 D2
P4 M2 D2
Unit – 38 (Business and the
Economic Environment)
BTEC National Diploma In Business Level 3
The Date
Your Name
Your Teacher
1
,Unit 38: Business and Economic Environment P4 M2 D2
Unit 38 – Business and Economic Environment
To:
From:
Date:
Ref:
On completion of this unit I should:
1) Understand the impact on business of changes in the economic environment.
2) Know how government spending impacts on businesses.
3) Understand fiscal and monetary policies and the effects on spending.
4) Know how the international economy affects UK business and competition.
Task 4:
a) Explain how both fiscal and monetary policy decisions have affected a selected
business.
b) Analyse the effects of fiscal and monetary policies for a selected business in terms of
the market it operates in.
c) Suggest and justify elements of fiscal and monetary policies that would help a
selected business achieve its objectives.
2
, Unit 38: Business and Economic Environment P4 M2 D2
Government policies
The most effective tools of ‘’manual’’ control of an economy within a country are Fiscal
and Monetary Policies. Fiscal policy involves the government changing the levels of taxation
and government spending in order to influence country’s economic environment. Through
fiscal policy, government attempt to improve unemployment rates, control inflation, stabilise
business cycles and influence interest rates. To illustrate how the government could try to use
fiscal policy to affect the economy, consider an economy that’s experiencing a recession. The
government might lower tax rates to try to fuel economic growth. If people are paying less in
taxes, they have more money to spend or invest. Increased consumer spending or investment
could improve economic growth. Elements of fiscal policy:
Direct taxation – is generally a tax paid directly to the government by the
person/organisation on whom it is imposed according to person’s/organisation’s income or
wealth. The following are three main types of direct taxation:
Income Tax – this is a tax that governments impose on financial income generated by all
entities within their jurisdiction. The more you earn - the more you pay. Excessive income
tax imposed at workers within JLR may result in a few negative issues. First of all, this will
demoralise employees since high proportion of the money they’ve earned will be taken away
and this may cause them thinking about changing the company they work for or altering their
employment status in order to avoid excessive taxation. Another effect of high income tax
within the UK could mean less people willing to work for big companies like Jaguar Land
Rover.
National Insurance – National Insurance contributions are paid to qualify for certain benefits.
This is a direct tax deducted from wages to contribute towards NHS, social security and state
pensions. Generally, this tax affects only employees working within Jaguar Land Rover,
since this tax is deducted directly from employee’s wages, unless otherwise is stated in
employment contract.
Corporation Tax – this tax that must be paid by a business based on the amount of profit
generated. Level of taxation affects Jaguar Land Rover’s costs. Since the excessive corporate
tax can dedicate a lot of the businesses’ incomes it can also hinder the growth of the
company. If Jaguar Land Rover is forced to pay high amounts of corporate tax, the company
may not be able to grow and offer employment to new employees. In fact, one of the most
likely ways the Jaguar Land Rover will respond to large corporate taxes or new types of
corporate taxes is by launching the process of staff reduction in order to cut costs and
maintain high profit margins. Thus, although excessive taxation is aimed to increase
country’s GDP, the businesses and people working for businesses within the UK will suffer.
On the other hand, low tax rates will allow Jaguar Land Rover greater flexibility in their
investments and re-investments since that will keep more after-tax profit within. If the
country in the economic environment of recession the government’s policies implemented
towards business tax reduction will surely soften effect of economic recession on Jaguar
Land Rover and possibly allow it to remain the same level of workers it had before the
recession.
3
P4 M2 D2
Unit – 38 (Business and the
Economic Environment)
BTEC National Diploma In Business Level 3
The Date
Your Name
Your Teacher
1
,Unit 38: Business and Economic Environment P4 M2 D2
Unit 38 – Business and Economic Environment
To:
From:
Date:
Ref:
On completion of this unit I should:
1) Understand the impact on business of changes in the economic environment.
2) Know how government spending impacts on businesses.
3) Understand fiscal and monetary policies and the effects on spending.
4) Know how the international economy affects UK business and competition.
Task 4:
a) Explain how both fiscal and monetary policy decisions have affected a selected
business.
b) Analyse the effects of fiscal and monetary policies for a selected business in terms of
the market it operates in.
c) Suggest and justify elements of fiscal and monetary policies that would help a
selected business achieve its objectives.
2
, Unit 38: Business and Economic Environment P4 M2 D2
Government policies
The most effective tools of ‘’manual’’ control of an economy within a country are Fiscal
and Monetary Policies. Fiscal policy involves the government changing the levels of taxation
and government spending in order to influence country’s economic environment. Through
fiscal policy, government attempt to improve unemployment rates, control inflation, stabilise
business cycles and influence interest rates. To illustrate how the government could try to use
fiscal policy to affect the economy, consider an economy that’s experiencing a recession. The
government might lower tax rates to try to fuel economic growth. If people are paying less in
taxes, they have more money to spend or invest. Increased consumer spending or investment
could improve economic growth. Elements of fiscal policy:
Direct taxation – is generally a tax paid directly to the government by the
person/organisation on whom it is imposed according to person’s/organisation’s income or
wealth. The following are three main types of direct taxation:
Income Tax – this is a tax that governments impose on financial income generated by all
entities within their jurisdiction. The more you earn - the more you pay. Excessive income
tax imposed at workers within JLR may result in a few negative issues. First of all, this will
demoralise employees since high proportion of the money they’ve earned will be taken away
and this may cause them thinking about changing the company they work for or altering their
employment status in order to avoid excessive taxation. Another effect of high income tax
within the UK could mean less people willing to work for big companies like Jaguar Land
Rover.
National Insurance – National Insurance contributions are paid to qualify for certain benefits.
This is a direct tax deducted from wages to contribute towards NHS, social security and state
pensions. Generally, this tax affects only employees working within Jaguar Land Rover,
since this tax is deducted directly from employee’s wages, unless otherwise is stated in
employment contract.
Corporation Tax – this tax that must be paid by a business based on the amount of profit
generated. Level of taxation affects Jaguar Land Rover’s costs. Since the excessive corporate
tax can dedicate a lot of the businesses’ incomes it can also hinder the growth of the
company. If Jaguar Land Rover is forced to pay high amounts of corporate tax, the company
may not be able to grow and offer employment to new employees. In fact, one of the most
likely ways the Jaguar Land Rover will respond to large corporate taxes or new types of
corporate taxes is by launching the process of staff reduction in order to cut costs and
maintain high profit margins. Thus, although excessive taxation is aimed to increase
country’s GDP, the businesses and people working for businesses within the UK will suffer.
On the other hand, low tax rates will allow Jaguar Land Rover greater flexibility in their
investments and re-investments since that will keep more after-tax profit within. If the
country in the economic environment of recession the government’s policies implemented
towards business tax reduction will surely soften effect of economic recession on Jaguar
Land Rover and possibly allow it to remain the same level of workers it had before the
recession.
3
