Download 4.3 Governmental opportunities and constraints student version

Topic 4.3 – The political and legal environment
Candidates should be able to:
 assess the effect of government intervention
 assess the effect of government economic
policies
 assess the effect of political decisions
 assess the impact of legislation
 evaluate responses of business
Topic 4.3 – The political and legal environment
Economic policy
Governments want to try to control the economy in
order to achieve various economic objectives:
 encourage e__________ growth (2 to 2.5%)
 control i__________ (CPI of 2%)
 maintain a satisfactory level of e____________
 achieve a satisfactory balance of payments
Topic 4.3 – The political and legal environment
Macroeconomic policy refers to the ways
g_______________ can attempt to influence the
economy as a whole.
They can use monetary policy, fiscal policy (or
a mixture of both) or supply side policy.
NOTE: Fiscal policy is also known as budgetary
policy.
Topic 4.3 – The political and legal environment
Monetary policy is a way of managing the economy
by controlling the m_____ supply and interest rates.
Remember that the UK government no longer
control interest rates – this is now the responsibility
of the _____.
The MPC can alter interest rates and the government
can try to influence the attitude to lending by
financial institutions.
E.g. in times of very low inflation the MPC may
lower interest rates and the government may
encourage b_______ etc to lend money.
Topic 4.3 – The political and legal environment
Fiscal policy involves the use of government
expenditure and taxation to manage the economy.
E.T.
So the government can alter the amount they spend
on s______, roads etc. They can also change the
range and levels of direct tax (e.g. income tax or
corporation tax) and/or indirect tax (e.g. _____).
Counter-cyclical policies are when the government
expands demand during a recession etc.
Topic 4.3 – The political and legal environment
Fiscal policy
Income tax in the UK (2014 – 2015)
Tax free allowance
£
Basic rate %
£10,001 - £
Higher rate %
£
- £150,000
Additional rate %
over £150,000
Topic 4.3 – The political and legal environment
Fiscal policy
In 2012 – 2013:
The higher rate was lowered from 50% to 45%.
Corporation tax was lowered from 30% to 24%
(2014/5 lowered to
)
Duty on alcohol, tobacco and fuel was
Topic 4.3 – The political and legal environment
Supply side policies are designed to make
markets operate more e___________.
The government can:
 set up t_________ schemes;
 reduce regulations or restrictions;
 privatise organisations;
 d__________ (remove regulations);
 reduce power of trade unions.
Topic 4.3 – The political and legal environment
The timing is a key factor as there is usually a
time lag between a government identifying a
problem and deciding on appropriate policies and
then the policy having an e_________.
Topic 4.3 – The political and legal environment
Intervention versus laissez-faire
An interventionist government approach is based
on the belief that g______________ should exert
a strong influence on the economy, rather than
allowing market forces to dictate conditions.
The idea is that the free market would result in
problems such as high u________________ and
inequalities in certain areas.
Topic 4.3 – The political and legal environment
Intervention versus laissez-faire
Examples of interventionism:
 support new firms by offering g______
 rescue packages for large m__________
 l_________ to protect workers
 encourage wage councils
 protectionism – use tariffs and/or q_______ to
restrict imports. This helps firms but can lead to
retaliation and/or inflation if imports are
necessary.
Topic 4.3 – The political and legal environment
Intervention versus laissez-faire
Laissez-faire government policy is based on the
belief that the free market will m_________
business efficiency and consumer satisfaction.
It therefore tries to a__________ interfering in the
running of business or any other part of the
economy.
The role of the government is limited to providing
the r_____ environment for businesses to flourish.
Topic 4.3 – The political and legal environment
Intervention versus laissez-faire
The UK is a mixed economy which means that
both the state and the market allocate resources.
The public sector is typically responsible for the
supply of public goods (e.g. street lighting) and
merit goods (e.g. e____________).
The private sector supplies private goods (e.g.
c__________ and mobile phones)
Topic 4.3 – The political and legal environment
In an area of high unemployment, what would a
laissez-faire government do/say?
Topic 4.3 – The political and legal environment
In an area of high unemployment, what would an
interventionist government do/say?
Topic 4.3 – The political and legal environment
How can firms affect government policies?
1. L________ – persuade MPs / government ministers,
who then vote on legislation
2. Access to the m________ – get press/TV interested
and hence gain publicity
3. Public p___________ - e.g. hauliers blocking petrol
stations
4. Could threaten to move a______ (or close down),
this only works if it’s a very large firm
But, overall there is not much individual firms can do!
Topic 4.3 – The political and legal environment
Legislation: there are various areas you need to
know about:
1. E__________ law
2. C___________ protection
3. E____________ protection
Topic 4.3 – The political and legal environment
Legislation
Laws are needed to:
 improve i_________ r____________
 prevent e______________ of staff
 prevent exploitation of c_____________
 protect the e________________
Topic 4.3 – The political and legal environment
Employment legislation
 Disability Discrimination Act 1995
 Minimum Wage Act 1998
 Employment Relations Act 2004
 Health and Safety at Work Act 1974
 The Enterprise Act 2002
Topic 4.3 – The political and legal environment
Consumer legislation
 Sale of Goods Act 1979
 Consumer Protection Act 1987
Topic 4.3 – The political and legal environment
Environmental protection legislation
 The Town and Country Planning Acts 1947
and 1990
 The Environmental Protection Act 1990
Topic 4.3 – The political and legal environment
Legislation: laws can have a positive impact on firms
Topic 4.3 – The political and legal environment
Laws can have a negative impact on firms
Topic 4.3 – The political and legal environment
Firms can adopt various strategies in response
to changing laws:
 introduce changes in advance to gain
c_____________ a______________ (e.g. safety
standards)
 e___________ legal requirements to attract
customers or staff
 relocate a________ where the regulations are
less stringent
Topic 4.3 – The political and legal environment
The European Union is a group of _____
countries who have the objective of removing
all trade barriers between member states.
This is an example of free trade and it means
that the factors of production (l____, l_______,
capital and enterprise) can move freely between
EU countries.
It accounts for ______% of the world’s GDP and
is the largest exporter of goods and services in
the world.
Topic 4.3 – The political and legal environment
Advantages for businesses
Topic 4.3 – The political and legal environment
Disadvantages for businesses
Topic 4.3 – The political and legal environment
EU policies : The Common Agricultural Policy
Guarantees farmers a price for their produce
BUT:
 o___________ (EU buys and stores surplus)
 higher p______ (than the market would set)
 e________ for the EU to buy excess supplies
(£34 billion per year, approx half of the EU’s
total budget) and only benefits a small sector
of the economy
 p__________ non EU countries competing
 u_____ as wealthy land owners get subsidies
Topic 4.3 – The political and legal environment
EU key policies – The Social Chapter
Aims to standardise working conditions and
give workers basic rights
SO:
 better motivated workers => more e______
 improved industrial relations => fewer s____
BUT:
Topic 4.3 – The political and legal environment
EU key policies – The Regional
Development Fund and the European
Social Fund
Provide money to reduce u________________
especially in areas which are struggling
E.g. the UK will receive €6.2 billion (£5.084
billion) in 2013 - 2020 to provide significant
investment in innovation, business, skills and
employment to help growth and jobs
Topic 4.3 – The political and legal environment
The single European currency (Euro)
The following countries have adopted the euro:
They are sometimes referred to as the
eurozone.
The European Central Bank based in
Frankfurt sets the i_________ rate for the
eurozone.
Topic 4.3 – The political and legal environment
Benefits of the Euro
Topic 4.3 – The political and legal environment
Drawbacks of the Euro
 costs of conversion e.g.
more competition – t___________ prices
 impact of ECB interest rates and monetary
policy reflect the


(loss of control over ‘own’ currency)
Topic 4.3 – The political and legal environment
Effects of the Euro on non-members
 some exporters/importers/tourist firms/multinationals have a________ the euro
 reduced u___________ when dealing with EU
and some reduction in transaction costs
 UK firms may be d____________ compared to
competitors in the eurozone
 competitiveness depends on o______ currency
against the euro
 mergers in the eurozone can make it harder to
c_________
 can switch borrowing from sterling to e______
Topic 4.3 – The political and legal environment
Implications of the expansion of the EU
Topic 4.3 – The political and legal environment
World Trade Organisation (WTO)
 This is an international body set up in 1995
with the aim of promoting f_____ t_______
between members (____ countries) and
reducing protectionism.
 Advantages of the WTO are that UK firms can
compete in export markets on equal terms with
locally based firms
 Disadvantages are that the UK markets are