The Impact of Economic Policies on Business

The Impact of
Economic Policies on
Business
Copyright © 2021 Talent & Skills HuB

Introduction
Economic policies set by governments usually have broad effects on
businesses.
Depending on the size of the country, governments spend up to
trillions of dollars in a single year.
Economic policies that affect legislation also have a big impact on
Businesses.
In this lesson, we are going to explore the economic policies and
their impacts on businesses.

Taxes
An increase in corporate income taxes has a direct effect on a business.
A tax increase on business profits hurts a company’s overall financial
performance.
Some corporations and small businesses argue that businesses should pay less
in taxes, not more.
The companies maintain that with a lower tax base they can boost the economy
by investing more money in the business, resulting in more jobs.
When business tax rates increase, some companies respond by raising prices on
goods and services.

Spending
More spending by the government may help certain businesses. For example,
businesses such as construction companies and engineering firms benefit when
a government uses taxpayer pounds to spend billions on new roads, bridges and
airports.
Défense firms specializing in military weapons systems rely almost entirely on
governments committed to a strong defence. That’s why defence contractors
spend considerable time and effort trying to affect economic policy decisions.
More spending by government will help certain businesses providing
educational services

Choices
Usually, a government cannot increase spending in one area without taking
away from something else.
A government with an economic policy dictating more money spent on defence
may have to reduce support for building more schools, for example.
That could result in less work for construction firms, forcing companies in that
industry to reduce staff or freeze open positions.

Wages
A country’s economic policy could also affect wages. Increases to a national
minimum wage benefit workers by allowing them to earn more money for the
same work.
That’s usually good for the workers, but it can be challenging for businesses
because it increases costs.
Labour costs are usually a company’s greatest expense. Some corporations
argue that they cannot compete against companies located in countries offering
a much lower minimum wage. That can result in a company transferring many
job functions to foreign countries.

Trade policy
Trade policy can affect a business by making it easier or more difficult to trade
across international borders.
Trade policy can include the imposition of import tariffs, quotas on imports and
exports of certain goods, and subsidies for local producers to support them
against international competition.
Governments often enter into bilateral trade agreements with other countries,
with the aim of reducing tariffs and barriers to business and establishing a free
trade area or common market.
However, this can be helpful to some businesses, but can also lead to increased
competition from abroad.

Interest Rates
Government policy can influence interest rates, a rise in which increases the
cost of borrowing in the business community.
Higher rates also lead to decreased consumer spending resulting to decrease on
investment
Lower interest rates attract investment as businesses increase production.
The government can influence interest rates in the short run by printing more
money, which might eventually lead to inflation.
Businesses do not thrive when there is a high level of inflation.

Regulations and Permits
Trade regulations, the federal/national minimum wage, and the requirements
for permits or licenses have effects on business. For example, periodic health
inspections must be carried out in all restaurants.
Businesses might spend a lot of money and time to comply with regulations that
ultimately prove to be ineffective and unnecessary. Fair and effective
regulations, however, promote business growth.

Effect of the
exchange rate
on business
The exchange rate will play an important role for firms
who export goods and import raw materials.
A depreciation (devaluation) will make exports cheaper
and exporting firms will benefit. However, firms importing
raw materials will face higher costs of imports.
An appreciation makes exports more expensive and
reduces the competitiveness of exporting firms.
However, at least raw materials (e.g. oil) will be cheaper
following an appreciation.

Talent &
Skills HuB
T&S-HuB is an enabling environment that supports people
in the development of their talents and skills and in the
actualisation of their personal passions and ambitions.
We help learners and individuals sharpen and exhibit their
talents and skills while exploring relevant and life
changing opportunities that suit their passions.
You can be supported by our instructors, counsellors, and
mentors on employability skills and other personal and
professional development.
Book an appointment for one-to-one or group tutoring
through our website; ts-hub.com
You can also contact us via email: contactus@ts-hub.com

The Impact of Economic Policies on Business

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to The Impact of Economic Policies on Business

Similar to The Impact of Economic Policies on Business (20)

More from Fred Freeman Okpala. BA, MBA,...

More from Fred Freeman Okpala. BA, MBA,... (20)

Recently uploaded

Recently uploaded (20)

The Impact of Economic Policies on Business