Fiscal and Monetary Policy

creative activity As an assistant conductor for Skanska I welcome been asked by my manager to beg off how financial and financial form _or_ system of giving medication decisions accept the business in which I work. To undertake this task I provide provide definition of the fiscal and monetary policies. I completelyow as nearly as explain what re make believe ordain is and what could be manage adapted changes on it. Additionally, I leave behind explain how some(prenominal) policies could cast off changes in employment direct. monetary polity frugal climate is essential to be requireled within every single county beca ingestion this helps hold important activities within the particular inelegant. whole countries where economy is developed created and follow polices which construe that bullion spent by governing activity be used in an provide stylus. Those policies argon known as fiscal and monetary policies. financial Policy Fiscal policy could be defined as a legislation which was introduced by authorities to control the economy. The fiscal policy control and upholds public receipts, public expenditure and borrowing capital. Fiscal policy includes take and indirect valuateationation, public funds, public sector borrowing, pre-budget report and redistri exception of income.The purpose of fiscal policy is to monitor, control and brave economy as a whole. (Ref. http//www. inve displaceedia. com/ foothold/f/fiscalpolicy. aspixzz1nhAdVG74) tax revenue Taxation could be defines as a befoolion of gold by governing body from their citizens and corporation businesses to found available expenditure of the country. Changes in tax would have a king-sized form on economy because nitty-gritty of obtained money could be spent for contrary purposes or needs of the country. Taxation could be divided into two master(prenominal) qualitys which be direct and indirect tax. Ref. set aside Business take aim 3, tidings Pu blisher Edexcel Page 300 generator canful Bevan) Direct Taxation This particular type of taxes is nonrecreational by population and businesses on their income and scratch. If the bar of income is higher(prenominal)(prenominal)(prenominal) than the higher will be direct tax which will have to be paid. Direct taxes could be compile by government in form of income tax, corporation tax, council tax, works tax, road tax, capital gains tax, inheritance tax, stamp barter, national insurance (NI). (Ref. Class notes- Direct and Indirect taxation Lecturer- Brenda Horan Date- 06/02/2012) Income TaxIncome Tax rolls 2011-12 by tax band and type of income Income tax is a main financial source for government to found activities of the country and public services. This is wage by allone within the country who has an income. It is protected by legislation that organisations and individuals have to proof how lots income was gene respectd for each year. Income tax could be calculated in thr ee ways which is 20, 40 and 50 percent. Additionally, there is a possibility of personal allowance which means that some heap income is not taxable as they do not earned abundant to pay income tax.This tax year the basic personal allowance or tax- submit get along is ? 7,475. Furtherto a greater extent, some sight may be entitle to a higher Personal Allowance if they have reached the age of 65 or over. (Ref. http//www. hmrc. gov. uk/incometax/basics. htm) National Insurance Contributions This is other form of tax which is base on income. National Insurance contribution similarly known as NI is paid by employees and employers to the government. NI is dependable on the amount of money which is earned by each party and whether people are employed or self-employed. finished National Insurance contributions employees are building up to entitlement for assorted social benefits if they have to. Additionally, NI building up a form of state pensions when employees would be retired . There is one restriction where people do not have to pay NI and this is when they reach solitude age. (Ref. http//www. hmrc. gov. uk/incometax/basics. htm) Corporation Tax Corporation tax is a form of tax which is based on taxable profits of all businesses. This is why organisations do their best to expurgate amount of corporation tax.The around common way to deduct the amount of corporation tax is to reinvest the profit into the farther learning of the business. (Ref. http//lexicon. ft. com/Term? term=corporation-tax) Indirect Taxation Indirect taxes are aerated by government on producers or suppliers. The main aim of these taxes is to reduce pollution and improve the environment. The lessons of indirect taxes are value added tax ( bath), come to certificate of indebtedness, channel passenger debt instrument, insurance taxes such as car, home or pet insurance, TV licence or driving licence. (Ref. http//tutor2u. net/political economy/revision-notes/as-marketfailure-ind irect-taxation. tml) Value Added Tax (VAT) This type of tax is super supercharged around on all products or services provided by organisations. For instance businesses pay VAT for all products which are needed to manufacture the products and then VAT is paid by customers if they want to buy manufactured products. VAT could be charged into three different rates which are standard rate 20%, reduced rate 5% and zero rated 0%. Standard rate is most common form of VAT and this is paid on almost all products or services unless they have been specified to reduce or zero rate.Reduced rate is depend on products its self and the batch of the sale. The most common example of reduced rate VAT are domestic fuel and power, installation of energy saving materials, sanitary hygienics goods or childrens car seats. Zero rated VAT is similar to the reduced rated VAT as is depend on products its self and the helping of the sale. The example of this type of VAT could be products or services such as food apart from the meals purchased in restaurants or hot takeaways, books and newspapers, childrens array and shoes, public lift. (Ref. http//www. hmrc. gov. k/vat/start/introduction. htm) Excise Duty This is another form of indirect tax which is only paid for certain products on the market. Excise duty tax is added to the goods or services which dexterity be luxuries, danger for environment and harmful for the health of population. The examples of products which include excise duty are tobacco, spirits and beers, oil or gambling. The government has introduced excise duty to en self-aggrandising amount of boilersuit collected taxes but also to settle the requisite for particular products. (Ref. http//customs. hmrc. gov. uk/channelsPortalWebApp/channelsPortalWebApp. ortal? _nfpb=true_pageLabel=pageExcise_InfoGuides) variant Passenger Duty Air passenger duty is paid by airlines to the government for carriage passengers from UK airports. international booked passengers who are coming into the country are exempted to pay this duty. Since 2009 air passenger duty is paid by the amount of flies whereas use to it was charged by every single passenger. The changes amended in this type of taxation emergenced prices of airline tickets as organisations are forced to pay much than taxes. The main purpose of collection of air passenger duty is to raise extra funds to upport economy but also for environmental reasons. (Ref. Book Business train 3, Book Publisher Edexcel Page 301 Author John Bevan) mankind Finances humans pays could be referred as the amount of money which government pays for its expenditures through collection of taxes and borrowing. To support association within the country the government provides valuable activities such as security, education, transport and health support. Running the following activities skill cost government millions so this is why appropriate amount of collected taxes is essential.Government have to balance overhead s for different departments in appropriate way and take in that money spent in certain area would benefit population and generate future call up in the economy. (Ref. http//glossary. econguru. com/ sparingal-term/public+finance http//www. etvotenow. org/financial-tips/public-finance-definition-know-your-environment-in-the-business- orbit-233. hypertext mark-up language) Public Sector Borrowing Public sector borrowing also known as a Public Sector Cash Requirement could be defined as an amount of money which government has to borrow from Bank of England to operate essential activities provided to the public.Public sector cash requirement occurs when the country does not collect enough finances to cover overheads of essential activities. If that would happen, then country will start exit into the debt what would disadvantage economy and community as less money strength be invested in public take. (Ref. http//www. qfinance. com/dictionary/public-sector-borrowing-requirement) Imp act of Fiscal policies on Skanska? Changes made within Fiscal policy would have a large impact on business operations. Skanska could be affected by any decisions made within these policies as any decisions could change the activities and revenues of the business.For instance, if government interrupt down the driping costs to build hospitals or motorways then Skanska will lose contracts, which simply means there would not be projects undertaken by my organisation. This situation would be reflected in the release of employees as the organisation baron not be able to afford to maintain workforce. Additionally, this would affect the manufacturing organisations as they would not be able to offer Skanska with their products and therefore less money will be generated and flowed into the economy.How does Fiscal policy affect Skanska? Skanska operates in saying industry so any changes in fiscal policy would affect overall operation of this business. Skanska as a one of leading twirl or ganisations in the United country would be affected by verificatory or negative step forwardcome. For instance, if government would change income tax band from taxation element for higher then this would benefit this organisation as there would be a possibility to pay lower amount of taxes by Skanska.The example could be that if government join on the income tax band of 50% from 150,000 to 200,000 then my elect organisation would generate higher revenue as even if they would achieve revenue of 180,000 the business will under the 40% of income tax band. The import of changes in this fiscal policy could create more profit for Skanska so owners, stakeholders and employees might benefit from this fact as higher amount of money obtained by the business could be shared into these parties. Additionally, the aftermath of fewer taxes paid by my organisation would nathnelo investors and owners to reinvest extra income in the business.Re enthronization of generated profit would be equalis ed to the expansion of Skanska what might create new jobs for employees due to further investments. Changes in public sector borrowing would also affect Skanska because if government would not collect enough taxes than it automatically precipitate amount of possible disbursements into the economy. In the past the government applied specious Rule of public borrowing which state that it should never be borrowed more than 40% of overall income from economy. cod to recession in United commonwealth the government has to break this rule to reduce possibility of bank building collapse.In 2010 the government decided to introduce Fiscal Responsibility Act which is about confine the amount of government borrowing. This act is mended to stop the country to follow into the debt. Due to breaking Golden Rule decision my chosen organisation had collapse opportunities to undertake any projects as more money were flowing into the economy. (Ref. Book Business level 3, Book Publisher Edexcel Pa ge 301 Author John Bevan) Monetary Policy Monetary policy is interlinked to fiscal policy and it was created by the government to support and control an economy activities.Monetary policy influence compound have, employment level, money supply, the pertain rate that is offered by central bank and the level central rate within the country. In the United Kingdom the central bank is the Bank of England which is in charge of enkindle and exchange rates or money supply. Additionally, the Bank of England is responsible for the amount of money that banks need to keep in the vault which is also known as bank reserves. The purpose of monetary policy is to control and stabilize overall economy within the country. (Ref. http//www. nvestopedia. com/ impairment/m/monetarypolicy. aspixzz1oQuE0cW4) heart and soul hold Aggregate take up could be defined as the total demand for provided goods and services produced within the economy over a certain finis of magazine. Aggregate demand is consi dered as the sum of habit, investment, government spending, and net exports. Aggregate demand has a large influence on the economy as a whole because its increase or lessening would generate exacting or negative outcomes in the economy. (Ref. http//finance-dictionary. com/definition/a/ summation-demand/) Interest RateInterest rate could be defined as the amount of percentage charged by lender usually banks to the borrower. The percentage of take rate is based on the annual basis also known as Annual theatrical role Rate (APR) and this is dependable on the value of borrowed money or assets. The example of borrowed assets could be cash, beneficial goods of consumers and large assets such as vehicles or premises. If the disport rate is low then there is frequent possibility of bigger investments as the businesses do not have to pay back much more than it was borrowed from the bank. Ref. http//www. investopedia. com/terms/i/interestrate. aspaxzz1oRT2mwKL) affair Level Employment level could be defined as the population who is currently working and this is presented in form of percentage. The level of employment is very important component part to be considered by government because through this aspect the taxes are collected which could be reinvested into the economy. Employment level is affected by monetary policy because if pretension level would increase then more apt(predicate) the take of employees would be higher.The overall payoff from this situation could be that the employer might reduce workforce to cut down cost which possibly would decrease conglobation demand due to less people would have confidence in spending money. (Ref. http//www. economicshelp. org/blog/453/unemployment/definition-of- honorable-employment/) Impact of Monetary policies on Skanska The changes in monetary policy would have a large influence on my chosen business because changes amended in these policies could have knock-on outlet in my organization.For instance, chang es of the interest rate for lower could lead to the situation where Skanska might invest in latest machinery as interest rate on this purchase will be lower so the business would save money if the urinate a purchase in this period. Additionally, low interest rate might create situation where population would be less likely to make a savings due to low interest which they could receive. If population would not be interested in saving then they would prefer to spend the money which they earn so the economy would benefit as the aggregate demand would increase.How does Monetary policy affect Skanska? Implementation of monetary policy could affect industry within my chosen business operates. Through increase or decrease of interest rates Skanska would be affected by the changes in demand of provided services by population. For instance, if government would decrease the level of interest rate than this might stimulate higher aggregate demand because people would have more money to spent. If population have a confidence to spend money than my chosen business is more likely to convince potential customers to make the purchase.Additionally, lower interest rate would suck in Skanska for new investments due to low interests which need to be paid back. This is also easier for construction industry to find new invertors all over the world as in this period investors are able to generate large return of invested finances. If government and central bank would decide to raise interest rate than this would disadvantage my chosen organisation as opposite effect which most likely would reduce aggregate demand and largeness. Employment level would be affected by changes in monetary policy which could create different situations within operation of Skanska.Government do their best to keep inflation at 2% which means that economy would be stable and earnings would be increase by similar level. Low raise of inflation would means that employees have a job security due to waterti ght costs of business. For instance, if inflation would drastically rise then wages would increase likewise so as a result business might not be able to afford workforce due to too high overheads. (Ref. http//tutor2u. net/economics/content/topics/ad_as/ad-as_notes. htm) How fiscal and monetary policy would help Skanska to achieve its objectives.Skanska committed their selves to outperform business in the wariness of the environment, health safety and the engagement with the communities they work in as well as the project performance and profitability. The achievement of main aims is depended on the legislations of government. Through changes in fiscal policy my chosen organisation would be able to generate outcome which would benefit the business and the productivity of economy. For instance, if inflation increase due to raise of aggregate demand than increased spending would most probably decrease national debt at least in rook term. in like manner decrease of income tax would increase the amount of available organisational income which might increase the aggregate demand. Appropriate changes in fiscal policy could create importantly impact the national income and therefore have immediate effect on the economy. Another benefit which Skanska could obtain from changes in fiscal policy is higher profitability and motivation of workforce if taxes on wages would be decreased. Additionally, if higher amount of people and organizations would earn more than automatically the government would collect more taxes such as VAT or income tax.Growth of economy would also means that government would spend less money for different types of benefits which support unemployment community. (Ref. http//12chunso. wordpress. com/2011/05/11/advantages-and-disadvantages-of-fiscal-policy/ http//library. thinkquest. org/19110/english/advantag/index. html http//www. economicshelp. org/macroeconomics/fiscal-policy/fiscal_policy. html) On the other hand, Fiscal policy have great influe nce on businesses operation so government have to ensure that amended changes do not affect the organisations in the way that they would not be able to operate.For instance if government would increase the income tax as too high level than organisation would not be interested in feather operations as too much amount of taxes which will have to be paid to government would be seen as not reasonable and the organisations might be unlikeable down. This would create negative outcome for economy because if businesses will be closed down then unemployment would increase and more money government will have to spend to support those people and no taxes at all would be collected as organisations would abandon from operations.Additionally, changes in direct taxation or government spending may take considerable time because of both political and moral reasons. For instance, taxing rich people more than the others might be seen as unfair treatment for parties who are charged higher. (Ref. http //12chunso. wordpress. com/2011/05/11/advantages-and-disadvantages-of-fiscal-policy/ How monetary policy would help Skanska to achieve its objectives. http//www. ehow. com/facts_5796267_benefits-policy-over-fiscal-policy_. html) ConclusionOverall, I have described what fiscal and monetary policies are and what is involved in those aspects. Also I have explained how does policies affect my chosen organisations and what out6come could be generated through changes in both policies. The fiscal and monetary policies are closely interlinked to each other. Fiscal and monetary policies are very important to be managed in an appropriate manner by government because wrong changes would not only affect businesses within the country but also the economy as a whole will be affected.Bibliography AuthorPageDate John Bevan Book- Business level 3 Page 300-305 Publisher Edexcel Class notes- Direct and Indirect taxation Lecturer- Brenda Horan Date- 06/02/2012 http//www. investopedia. com/terms/f/fisca lpolicy. aspixzz1nhAdVG74 http//www. hmrc. gov. uk/incometax/basics. htm http//lexicon. ft. com/Term? term=corporation-tax http//tutor2u. net/economics/revision-notes/as-marketfailure-indirect-taxation. html http//www. hmrc. gov. uk/vat/start/introduction. htm http//customs. hmrc. gov. k/channelsPortalWebApp/channelsPortalWebApp. portal? _nfpb=true_pageLabel=pageExcise_InfoGuides http//glossary. econguru. com/economic-term/public+finance http//www. etvotenow. org/financial-tips/public-finance-definition-know-your-environment-in-the-business-world-233. html http//www. qfinance. com/dictionary/public-sector-borrowing-requirement http//www. investopedia. com/terms/m/monetarypolicy. aspixzz1oQuE0cW4 http//finance-dictionary. com/definition/a/aggregate-demand/ http//www. investopedia. com/terms/i/interestrate. aspaxzz1oRT2mwKLFiscal and Monetary PolicyTOMAS L. OLFATO dis authoriseS TO assembly 4 EXAM ECON 204 (NOTE break upS ARE HIGHLIGHTED IN YELLOW) PART I. (5 points each) A. An inc rease in government spending will shift the IS curve to left increase output with higher interest rate. pic Expansionary monetary policy or Contractionary monetary policy. a) To maintain the akin level of output, what monetary policy should BSP implement? ANSWER EXPANSIONARY financial POLICY (Increasing money supply lowers interest rate) b) To maintain the said(prenominal) level of interest rate, what monetary policy should BSP implement?ANSWER CONTRACTIONARY fiscal POLICY (Reducing money supply results to an increase in interest rate) B. An inflationary spreadhead occurs when aggregate demand exceeds aggregate supply at full employment level of output. When there is increased spending and availability of money are high, prices start to rise resulting to an inflationary gap. What fiscal policy (Expansionary or Restrictive) should the government implement to dampen growth and lower inflationary pressures(5 points). ANSWER RESTRICTIVE FISCAL POLICY (Racing taxes or cutting govern ment spending to dampen GDP(Aggregate Demand) growth and lower inflationary ressures) pic C. A Deflationary gap occurs when aggregate supply exceeds aggregate demands at full employment level of output. The opposite of Inflation, deflation has the side effect of increased unemployment which can lead to economic depression. What fiscal policy (Expansionary or Restrictive) can government implement to stop severe deflation(5 points). ANSWER EXPANSIONARY FISCAL POLICY ( Increasing government purchases, decrease in taxes and/or increase in transfer payments closes a recessive gap, stimulate the economy and decreases the unemployment rate) pic PART II. (2 points each) True or False trumped-up(prenominal) 1. The Keynesian school of thought is based on the premise that free markets can regulate themselves alone, free of any human intervention. There is an undetectable hand that moves market towards a natural equilibrium, without the requirement of an intervention. TRUE2. Keynesian econom ic models stress the fact that government intervention is absolutely necessary to ensure growth and economic stability. The government has the very important job of smoothing out the business cycle bumps.TRUE3. In the Goods market, an increase in interest rate will result to a decrease in Money Demand spot a decrease interest rate will result to an increase in Money Demand. TRUE4. In the financial market, an increase in interest rate will increase Money Supply while a decrease in interest rate will decrease Money Supply TRUE5. In liquidity trap, people are extraneous as to how much money or how many bonds they hold, so they are willing to hold fewer bonds and more money (more liquid) at the same nominal interest rate.The money supply will increase but the effect on the nominal interest rate remains zero. All the additional money is held as idle balances and equilibrium is unchanged. FALSE6. Disposable Income excludes both the negative impact of taxes and positive impact of transfe r payments. FALSE7. Transfer payments decreases fluid income TRUE8. Fiscal neutrality creates a condition where demand is neither randy nor diminished by taxation and government spending. TRUE9. Crowding out effect happens when expansionary fiscal policy causes interest rates to rise, thereby step-down the investment or spending.If an increase in government spending and/or a decrease in tax leads to a budget dearth and this deficit is financed by increased borrowing, this creates demand for money and loanable funds. This will increase interest rates leading to a reduction in private consumption or investment. FALSE10. Expansionary fiscal policy increases national saving thereby reducing the supply of loanable funds and raising the equilibrium of the interest rate. PART III. (5 points each) 1. A monetary policy wherein the government steps on the break. RESTRICTIVE MONETARY POLICY 2. A policy that focuses on controlling price and interest rates.MONETARY POLICY 3. The most popular policy instrument. OPEN MARKET operations 4. A monetary policy instrument in which BSP have no total control. DISCOUNT RATE 5. When the government wants to reduce the money supply in open market, it has to. SELL BONDS TO THE PUBLIC PART IV. (10 points) If the government wants to solve the issue on economic growth by increasing the money supply, what should be the effect on interest rate, investment, and consumption? MONEY SUPPLY, v INTEREST RATE, INVESTMENT, CONSUMPTION Please email your answers to emailprotected com with copy to emailprotected com and emailprotected com THANKS