Question

Company Starbuck
.
Scenario

Understanding the relationship between businesses and the environment in which the businesses operate is very important in shaping how businesses behave. In your role as Business Development Manager, you will need to develop strategies that enable your organisation to meet its purposes in ways that comply with the relevant legal and regulatory frameworks. This would involve extensive research on the organisation’s purposes and the nature of the environment in which the business operates.

You need to prepare and present PowerPoint slides to your work colleagues identifying, describing and explaining the following:-

2.1 Explain how economic systems attempt to allocate resources effectively

2.2 Assess the impact of fiscal and monetary policy on business organisations and their activities

2.3 Evaluate the impact of competition policy and other regulatory mechanisms on the activities of a selected organisation

Answer 1

Impact of fiscal and monetary policy on business organisations:

Ever since the end of World War II the federal government has had the responsibility of promoting full employment through the application of its fiscal and monetary policies. The government's mandate is the Employment Act of 1946. While the different political parties have given this mandate their own interpretation, the overall impact has been to stimulate business and small business in particular.

Fiscal Policy

The fiscal policies that the federal government pursues are the spending and taxing programs that the Congress and President formulate and enact. These affect the business sector on two levels – legislation that stimulates the overall economy and targeted legislation that is aimed at specific sectors. To stimulate the economy the government might pass an across-the-board tax cut, putting more money in everyone’s' pockets. Government spending programs may have a more direct impact if your business or industry is a beneficiary of the government's largess. Specific projects – high speed rail, solar power or infrastructure projects – directly benefit those firms involved.

Monetary Policy

As the watchdogs of the nation's money supply, the Federal Reserve has the responsibility to expand the money supply while keeping inflation in check. The immediate impact of Fed policy is on interest rates – the cost of money. When the Fed pursues an expansionary policy, the increased supply of money holds down interest rates, making it easier to borrow money for capital investments. Conversely, when the Fed tightens the money supply to cool an overheated economy, interest rates rise.

Pros and Cons

While fiscal and monetary policies work well in theory, there are problems that may hinder business operations. Fiscal policy involves time lags. If the economy is slumping, government stimuli take time to work their way through the economy. More serious is the impact on interest rates when the government borrows money. This “crowding out” drives up interest rates because the government competes with private industry to borrow. While the Federal Reserve can purchase some of the debt, it expands the money supply in the process, risking inflation which is also detrimental to a sound business climate. Some economists blame the Fed for mismanaging the money supply, causing the dot-com bubble of 1999 and the housing bubble that followed a few years later

Targeted Programs

As a small business, you have several specific options to take advantage of the government's fiscal policies. The Small Business Administration provides assistance in a variety of ways, including support on starting and managing your business, providing loan guarantees to help you grow your business and assistance in bidding on government contracts. The SBA also coordinates the Small Business Innovation Research program, which helps support research and development in the private sector while providing the government with needed research.