In the present business environment governments have the power to
change and make laws, having a major role and influence on the business
environment. There are three levels of government; federal, state and local.
The federal government has power over such areas as; company
law, income tax, trade etc. State government has power over pollution,
price controls, state courts etc. and local government has power over rates,
building approvals and zoning. Through zoning the local government can
decide where businesses are located, or how many similar businesses
should be built in a particular area. The power of the government can have
direct or indirect influences on the business environment, encouraging or
forcing businesses to comply. The federal government has the greatest
effect over the macroeconomic business environment through the making
of policies. The government has a number of economic objectives. They
aim to have consistent economic growth, low rates of inflation, a sound
international trading situation and low unemployment.
To meet these
objectives the government must place policies such as fiscal, monetary,
trade and income policies.
Fiscal policy is the deliberate action of the government to change its
levels of income and expenditure, through the annual budget. By
budgeting for a deficit or surplus, the government will contract or expand
the economy. e.g If the government needed to cut unemployment they
would budget for a deficit so more money is injected and less money is
taken from the economy by less taxes and higher expenditure raising
Monetary policy can also raise the level of economic activity. It
controls the availability of money by influencing the level of interest rates.
Lowering interest rates encourages people to spend and borrow while
higher interest rates encourages people to save and not borrow. By
lowering interest rates the government encourages spending thus...