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Describe the roles of government in the present business envi

Business Studies - Essay

Q: Describe the roles of government in the present business environment.

In the present business environment governments have the power to

change and make laws, having a major role and influence on the business

environment. There are three levels of government; federal, state and local.

The federal government has power over such areas as; company

law, income tax, trade etc. State government has power over pollution,

price controls, state courts etc. and local government has power over rates,

building approvals and zoning. Through zoning the local government can

decide where businesses are located, or how many similar businesses

should be built in a particular area. The power of the government can have

direct or indirect influences on the business environment, encouraging or

forcing businesses to comply. The federal government has the greatest

effect over the macroeconomic business environment through the making

of policies. The government has a number of economic objectives. They

aim to have consistent economic growth, low rates of inflation, a sound

international trading situation and low unemployment. To meet these

objectives the government must place policies such as fiscal, monetary,

trade and income policies.

Fiscal policy is the deliberate action of the government to change its

levels of income and expenditure, through the annual budget. By

budgeting for a deficit or surplus, the government will contract or expand

the economy. e.g If the government needed to cut unemployment they

would budget for a deficit so more money is injected and less money is

taken from the economy by less taxes and higher expenditure raising


Monetary policy can also raise the level of economic activity. It

controls the availability of money by influencing the level of interest rates.

Lowering interest rates encourages people to spend and borrow while

higher interest rates encourages people to save and not borrow. By

lowering interest rates the government encourages spending thus

increasing the level of economic activity.

Income policies influence wage outcomes by negotiating with the

unions and the employers and putting arguments before the industrial

relations commission. Governments can restrain real wages and cause

unemployment levels to fall.

Trade policies influence the exchange rate and determines the levels

of production for Australian industries. Trade policies include tariffs,

quotas, embargoes and subsidies, to protect businesses from foreign

competition. Trade policies help the economy by encouraging Australians

to buy Australian products.

The federal governments role in the present business environment is

to promote economic growth, keep unemployment at a minimum, and

protect businesses from foreign competition, by creating policies.

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