accaF1Ch6.pptVIP

2004 Fall ACCA Paper 1.3 Ch6 The macro-economic environment Study guide Define macro-economic policy Main types of economic policy Impact of fiscal and monetary policy Determinants of level of business activity and its influence on individuals, households and business Impact of economic issues (inflation, unemployment, stagnation, international payments disequilibrium) on individuals, households and business 1 Government policies and objectives 4 main objectives of economic policy: To achieve economic growth: increases caused by price inflation are not real increases To control inflation To achieve full employment: unemployment level is low and involuntary unemployment is short-term To achieve a balance between exports and imports *R-15:#11 Significance of gov. tax and spending to companies Gov. expenditure affects suppliers to the gov. Gov. spending has a ‘knock-on’ effect on the whole economy Taxation affects consumers’ purchasing power Taxation affects after-tax return on investment of companies Public sector investment affects public sector companies and private sector companies Gov. role in economic planning Gov. should not plan economic activity in detail, but act as enabler of private sector activity and corrector of market imperfection. Provide legal system relating to business Responsible for macro-economic management Raise trade barriers to protect domestic industry Subsidise and promote exports Encourage inward investment by foreign countries Carry out regional policy Gov. can influence commercial decisions Output capacity; competition; sales demand Through tax or grants; acts and practice; policies Gov. can influence operational decisions Health and care; employment; consumers; tax Through legislation; regulations; standards; tax laws 2 Fiscal policy Fiscal policy provides a method of managing aggregate demand in the economy. Aggregate demand =consumption + investment + gov. expenditure +export *Pilot paper#16 Gov. must plan its spending, b