Natan Trolka P4, M2, D2
INTRODUCTION
Fiscal policy and monetary policy are both policies used by the government to control the economy. Fiscal policy
means dealing with government spending and taxation to keep the economy in control. Monetary policy is dealing
with money supply to keep the economy in control. This is mainly done through the setting of interest rates.
Government is using both policies to keep the economy under control.
FISCAL POLICY
Fiscal policy is a government's decisions regarding spending and taxing. If a government wants to stimulate growth
in the economy, it will increase spending for goods and services. This will increase demand for goods and services.
Since demand goes up, production must go up. If production goes up, companies may need to hire more people.
People that were once unemployed may now have jobs and money to spend on goods and services.
This will further increase the demand and require more production and, hopefully, the cycle of growth will
continue. Tesco may even get more business as people have more money to spend on products in their stores.
Consequently, government spending tends to speed up economic growth.
If the government thinks the economy is growing too fast, the government may decrease spending. A decrease in
government spending will decrease overall demand in the economy.
Businesses will slow production, which means profits will decline, resulting in less hiring and business investments.
A cut in government spending may hurt Tesco, because there will be less money in people's pockets to spend at
Tesco’s stores.
The other side of fiscal policy is taxes. Decreasing taxes tends to stimulate economic growth. If taxes go down, then
Tesco will have more money. They will either spend it or save it. If they spend it, it increases demand and
bu/sinesses have to produce more. This means they may have to hire more people. These people will then have
more money to save or spend.
Some economists are concerned that government spending and reduction in taxes will create a crowding out
effect. If the government doesn't have enough revenue to support spending, it will have to borrow money.
According to some economists, government borrowing tends to increase interest rates, and increased interest rates
discourage individuals and businesses.
If the government wants to slow down the economy, it may decide to raise taxes. This means people have less
money to spend. Fewer people will be hired because there is less demand. Unemployed people don't have extra
money to spend at Tesco stores. Meaning that Tesco may not make as much money, which means they will have
less money to invest in the business and less money to spend for personal consumption. The economy will slow
down.
MONETARY POLICY
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often
targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.
, Natan Trolka P4, M2, D2
Government makes different monetary and fiscal policies to control the economy and the business organisations.
These policies are taken by the government bodies considering the economic positions that also have a god impact
on the business activities of a company that are shown below;
Changes in the interest rate: When government changes the interest rate through the monetary policy then it has
an impact on the business activities. If interest rates rise then Tesco will face difficulties on financing as the cost of
capital will increase while the customers will reduce their consumption level that will reduce the sales volume of
Tesco.
On the other hand, If Interest rate reduces then Tesco will be able to get more financing at lower cost. This will help
Tesco operate the business activities.
Changes in the reserve requirements: if monetary policy changes the reserve requirement then it will also have an
impact on the overall business activities. High reserve requirement will push the interest rate high that will
influence the consumers to deposit more rather than consumption. So Tesco has to change the business activities
as its sales volume will reduce.
Changes in the exchange rates: If exchange rate changes then it will also affect the activities of Tesco. If pound
appreciates then the business sector of Tesco that is operating in other countries will face problems while home
country sales will increase more value for Tesco.
Changes in the tax rate: If government changes the tax rate through the fiscal policy then it will affect the business
activities from different perspective. If tax rate is reduced then Tesco will be benefited and company may increase
the quality of the products without considering the changes in the price. Or Tesco can increase more expenses on
the advertisement or other sector as reduction in the tax rate has made the company more profitable.
Changes in the government spending: If government increase the government spending in different sector than a
business organisation will face reduction in the sales volume. On the other hand, reduction in the government
spending will increase the demand for the private sector so is it for Tesco PLC.
TAXES
There are two different types of taxes:
Direct taxes
Indirect taxes
Direct taxes are the ones that are paid directly to the government by individuals and businesses. Tax is paid out of
income or profit, for example, income tax, corporation tax, national insurance contributions.
Indirect taxes are taxes not taken directly from the individual but indirectly through the goods and services they
purchase, for example, VAT, customs duty, air passenger duty etc.
DIRECT TAXES
INCOME TAX
Most people are entitled to a personal allowance, which means that a proportion of their income is not taxable. Tax
also comes from the interest received on savings in the bank and again is paid at 20% or 40%, depending on the
INTRODUCTION
Fiscal policy and monetary policy are both policies used by the government to control the economy. Fiscal policy
means dealing with government spending and taxation to keep the economy in control. Monetary policy is dealing
with money supply to keep the economy in control. This is mainly done through the setting of interest rates.
Government is using both policies to keep the economy under control.
FISCAL POLICY
Fiscal policy is a government's decisions regarding spending and taxing. If a government wants to stimulate growth
in the economy, it will increase spending for goods and services. This will increase demand for goods and services.
Since demand goes up, production must go up. If production goes up, companies may need to hire more people.
People that were once unemployed may now have jobs and money to spend on goods and services.
This will further increase the demand and require more production and, hopefully, the cycle of growth will
continue. Tesco may even get more business as people have more money to spend on products in their stores.
Consequently, government spending tends to speed up economic growth.
If the government thinks the economy is growing too fast, the government may decrease spending. A decrease in
government spending will decrease overall demand in the economy.
Businesses will slow production, which means profits will decline, resulting in less hiring and business investments.
A cut in government spending may hurt Tesco, because there will be less money in people's pockets to spend at
Tesco’s stores.
The other side of fiscal policy is taxes. Decreasing taxes tends to stimulate economic growth. If taxes go down, then
Tesco will have more money. They will either spend it or save it. If they spend it, it increases demand and
bu/sinesses have to produce more. This means they may have to hire more people. These people will then have
more money to save or spend.
Some economists are concerned that government spending and reduction in taxes will create a crowding out
effect. If the government doesn't have enough revenue to support spending, it will have to borrow money.
According to some economists, government borrowing tends to increase interest rates, and increased interest rates
discourage individuals and businesses.
If the government wants to slow down the economy, it may decide to raise taxes. This means people have less
money to spend. Fewer people will be hired because there is less demand. Unemployed people don't have extra
money to spend at Tesco stores. Meaning that Tesco may not make as much money, which means they will have
less money to invest in the business and less money to spend for personal consumption. The economy will slow
down.
MONETARY POLICY
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often
targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.
, Natan Trolka P4, M2, D2
Government makes different monetary and fiscal policies to control the economy and the business organisations.
These policies are taken by the government bodies considering the economic positions that also have a god impact
on the business activities of a company that are shown below;
Changes in the interest rate: When government changes the interest rate through the monetary policy then it has
an impact on the business activities. If interest rates rise then Tesco will face difficulties on financing as the cost of
capital will increase while the customers will reduce their consumption level that will reduce the sales volume of
Tesco.
On the other hand, If Interest rate reduces then Tesco will be able to get more financing at lower cost. This will help
Tesco operate the business activities.
Changes in the reserve requirements: if monetary policy changes the reserve requirement then it will also have an
impact on the overall business activities. High reserve requirement will push the interest rate high that will
influence the consumers to deposit more rather than consumption. So Tesco has to change the business activities
as its sales volume will reduce.
Changes in the exchange rates: If exchange rate changes then it will also affect the activities of Tesco. If pound
appreciates then the business sector of Tesco that is operating in other countries will face problems while home
country sales will increase more value for Tesco.
Changes in the tax rate: If government changes the tax rate through the fiscal policy then it will affect the business
activities from different perspective. If tax rate is reduced then Tesco will be benefited and company may increase
the quality of the products without considering the changes in the price. Or Tesco can increase more expenses on
the advertisement or other sector as reduction in the tax rate has made the company more profitable.
Changes in the government spending: If government increase the government spending in different sector than a
business organisation will face reduction in the sales volume. On the other hand, reduction in the government
spending will increase the demand for the private sector so is it for Tesco PLC.
TAXES
There are two different types of taxes:
Direct taxes
Indirect taxes
Direct taxes are the ones that are paid directly to the government by individuals and businesses. Tax is paid out of
income or profit, for example, income tax, corporation tax, national insurance contributions.
Indirect taxes are taxes not taken directly from the individual but indirectly through the goods and services they
purchase, for example, VAT, customs duty, air passenger duty etc.
DIRECT TAXES
INCOME TAX
Most people are entitled to a personal allowance, which means that a proportion of their income is not taxable. Tax
also comes from the interest received on savings in the bank and again is paid at 20% or 40%, depending on the
