How Government Influences Local Business by HZPSpuY5


									How Government Influences
     Local Business
         Unit 1 P4
“We may have the best service, the
 best staff, the best marketing, the
  best prices but if the price of Oil
   goes up we lose customers”
 Government Influences On Local
• A business' success or failure does not always
  depend on the decisions made by its owners.
• There are many external influences that can
  contribute to how well or poorly a business
• These external factors include:
• >> Employment
• >> Inflation
• >> Interest Rates
• >> Government Policy
• >> Business Cycle
• Local employment is affected by local, regional,
  national or international conditions (e.g. global
  downturn, recession)
  – If there is less money in the economy, sales drop and
    people are unemployed
  – If there is more money in the economy, sales go up
    and more people are employed
• Government can help unemployment in an area
  – Pushing new industries into unemployment areas
  – Increasing support for local apprenticeships
  – Allowing planning applications through e.g. Tesco in
• This is the general rise in the level of prices of goods or
• The government controls inflation (as best it can) and
  aims for about 1.5 to 2% of inflation per year.
   – GOOD INFLATION = healthy demand / increase the output
   – HIGH INFLATION = raw materials / wages go up and
     companies/regions/nations become uncompetitive

• How government helps business:
   – Good economic policy like keeping stable currency exchange
     rates so prices stay stable (too high no one buys them)
   – Local tax, business tax either increased or decreased to control
                     Interest Rates
• For businesses interest rates are very important for investment and
• They are controlled by the banks and influenced by the government
• HIGH INTEREST RATES = Businesses have less money as their
  repayments are higher
• LOWER / FAIR RATES = Businesses can cope better and have
  money to manage growth, better wages and R&D

• How Government helps:
   – Direct support for local business projects by very low interest rates
     (better than banks)
   – Investment advice from professionals
              Government Policy
The government helps local businesses by:

   – Governments provide money in the form of grants, subsides and
     tax breaks (paying less tax than you should) to encourage
     businesses in certain areas of the economy.
• Enterprise Zones
   – aim to attract businesses to inner city areas.
• Local Support
   – Governments also provide support through advisory bodies
     coordinated by the Department of Trade and Industry, especially
     for small businesses.
   – Chambers of Commerce.
       • This organisation represents businesses in a local
         community, acting as a source of advice from the
         experiences of other businesses and exploiting the
         connections within these businesses.
                 Business Cycle
• The government and the national economy are like a business
• Like all businesses the economy grows and declines:
   – BOOM: A period of fast economic growth. Output is high due to
      increased demand, unemployment is low. Business confidence
      may be high leading to increased investment. Consumer
      confidence may lead to extra spending.
   – SLUMP: A period when output slows down due to a reduction in
      demand. Confidence may begin to suffer.
   – RECESSION: A period where economic growth slows down and
      the level of output may actually decrease. Unemployment is
      likely to increase. Firms may lose confidence and reduce
      investment. Individuals may save rather than spend.
   – RECOVERY: A period when the economy moves between
      recession and a boom

• The affects local business because
• These external factors include:
  >> Employment
  >> Inflation
  >> Interest Rates
  >> Government Policy
  >> Business Cycle
How Government Influences Local Business (Unit 1 P4)

                           Negative               Positive

                                                              Negative       Positive

    Employment               Government Influences                  Interest Rates

                         Business Cycle
                                                         Negative        Positive
              Positive                Negative

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