Business Case

When the government raises taxes it adversely affect the company as they may have to pay more taxes on its profits, known as corporation taxes and alters tax exemptions. The company may have less money for hiring and investment and might pass the increase on to the consumers in the form of higher prices. This will reduce the amount of disposable income and may spend less on goods and services as they may have to even spend more on paying taxes such as VAT.

In contrast if taxes are lowered, it stimulates investment spending and job creation.

1.6 How monetary policy affects the business?

It affects the overall economy, especially the companies, as it affects the ability for firms to obtain loans.

1.6.1Lower interest rate

When the central bank lowers the interest rates it eases the access to credit and thereby the company can use it for their business expansion and invest in new machinery and new launch of products. It also makes shares more attractive to buy and increases the financial strength of the business. It will make the company' investment projects more attractive. It also depreciates the local currency against foreign currency, which increases the demand for domestic goods and thereby increase exports and reduces imports.

1.6.2 Higher interest rate

On the other hand, an increase in interest rates reduces the money supply and makes it more difficult for firms to borrow and makes imports more attractive. This offers one benefit for local firms who purchase raw materials from abroad as it will be cheaper however make it harder for them to export.