Chapter 21 - Businesses and the Political and Legal Environment

AQA business studies for A2 - Hodder Education notes on chapter 21

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Chapter 21 - Businesses and the political and
legal environment
The operation of the UK economy affects everyone and every business in the country. Changes in
the level of production, employment or prices can have significant consequences for manager, for
employees and for consumers. However we cannot consider the UK economy in isolation. The UK is
part of the wider EU economy and is important component of the global economy that is assuming
ever greater importance.
Most governments would be satisfied is they could manage the economy to achieve the following
targets in relation to the economy:
The rate of inflation below the governments targets of 2% annually
Less than 5% of the workforce unemployed
Steady economic growth at rates of 2/3% each year
Governments economic policies
Monetary Policy ­ using this policy the gov manipulates the amount of money/interest rates
within the economy in order to achieve the desired level of economic activity.
Fiscal policy ­ this refers to the government's use of taxation and public expenditure to
manage the economy.
Supply-side policies ­ these are designed to improve the free operation of markets and
therefore the total amount that is produced by the economy.
Monetary This type of policy Altering interest Effects ­ the impact of rising
involved adjusting rates interest rates will depend
the amount of upon the size of the change as
money in Controlling the well as the initial rate. A small
circulation and money supply increase at a relatively high
hence the level of level of rates will have little
spending and Manipulating the impact, while a larger increase
economic activity. exchange rate from a low base rate will have
a significant impact.
Fiscal policy if the use of government expenditure and taxation as a means of controlling the level of
activity within the economy. In particular a government's fiscal policy is the relationship between
the level of government expenditure and the amount raised in taxation. Fiscal runs from 6 April ­ 5
April the following year.

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Expansionary Fiscal This entails cutting taxation/ increasing government expenditure on
Policy health, education etc. the effect will be to increase the amount the
government borrows to fund its expenditure.
Contractionary Policy This is brought about by reducing government expenditure of increasing
taxation, or by both policies simultaneously. The effect is to increase the
governments PSNCR or to reduce its surplus on its budget for the fiscal
year.…read more

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Supply Side Policies
These are a range of measure intended to improve the operation of free markets and the amount
that is produced by the economy.
Labour Market Measures In 1990 the government reduced the power of
trade union to permit labour markets to operate
more freely.
Privatisation This is the process of transferring organisations
form the state to the ownership and control of
individuals and other businesses.
Other Supply-Side Measures Removing controls on the operation of markets
that provide capital and land.…read more

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The Equalities Act The equalities act replaced a number of earlier anti-discrimination
2010 laws to simplify legislation. The protected characteristics are:
Age/Disability/Race/Gender Reassignment/ Marriage/
Religion/Pregnancy/Sex/Sexual Orientation
Unfair Dismissal Unfair dismissal is the termination of a workers contract of
employment without a legal reason. Legislation relating to unfair
dismissal only relates to workers once they have been in the same
job for more than 1 year.…read more

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Consumer protection legislation
Consumer protection is a term used to describe a series of acts designed to safeguard consumer
Businesses charging excessively high prices or rate of interests.
Unfair trading practices
Unsafe products such as children's toys with sharp objects
Having insufficient information on which to take purchasing decisions.
Since 1973 the office of fair trading has overseen consumer protection in the UK.…read more

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The government imposes fines on firms who breach legislation relating to the protection of the
Strategic responses to changes in the political and legal environment
The political and legal environment can have a major impact on the way in which businesses operate
and also their costs of production. Because of this, businesses may adopt a variety of strategies in
response to changes in this aspect of their external environment.…read more


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