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Describe the roles of government in the present business environment

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 employment.

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


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


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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