Government Influence

goverments influence business and the economy through: 

1. taxation 
2. public spending 

They control the amount of money in circulation and estamating economic growth. 

reasons why governments influence the economy of a country? 
1. to ensure ensential goods and services are available to sections to community who need them. 
2. to prohibit or control production of goods and services considered undesirable or harmful. 
3. to regulae supplier activity and protect customer's interest. 
4. help this advantage sections of community through taxation and walfare 
5. to help supplier through grand and subsidies and improve trading conditions. 
6. to encourage economic growth. 

so goverments influenced the economy through two things: 

1. physical policies 
2. monotory policies 

physical policies concerne with government income and public expanditur 
while monotory policies it is concerne with the amount of money in stimulating 

how does a government gets its money? 
most important income source is taxation 

3 main types of taxes: 

1. Direct taxes, it is taxes on income. they reduce the amount of person keeps out of his or her earnings. 

2. taxes on expanditure, these are indirect tax. it is called indirect because its payed first to the suppliers(e.g resto) and they forward it to the government. These include purchase taxes such as sales tax or value added tax. (VAT) that is added to price of most goods and services. 

3. taxes on business, such as taxes on the profits made by a company. 

How does a government spend its money? 
1. provide or purchase goods and services for the benefit of society. 
2. purchase or construct hospitals, schools, growth, public libraries, etc. 
3. subsidise the production of goods and services by business.
4. make transfer payments. so it is money that is transfered from one sector of society to another.


how do changes in taxation affect businesses?
1. if we increase income tax, mainly to reduce demand for goods and services. reduce levels of production and possible redundencies. reducing income tax may have the opposite intax.
2. if increasing indirect tax, would lead to an increase inprises and bussineses left to decide whether to pass increases to costumers, risking of fall in demand or they absorb the cost and suffer reduce profits.
3. increasing the levels of taxes on bussines has the effect of increasing cost and reducing profits. when that happen, either businesses cut cost in other areas such as employment but if they cut cost in areas like employment it leads to unemployment or they can increase price leading to inflation.


Activity

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