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How Will Changes in Fiscal Policy Affect Business

By Rohan A T

Business are affected by various internal as well as external factors and this makes it even harder for businesses to find a foothold in the market. One external factor that is a crucial one especially for businesses is the fiscal policy. Simply defined, fiscal policy is referred to the use of tax policies as well as government funding which is used to influence economic conditions and macro-economic conditions to be precise. This includes inflation, employment, and economic growth as well as aggregate demand for services and goods. Fiscal policies will have a major impact on the different facets of a business and business owners should always have an eye on the policy and the rates so that they will be ready in order to adapt to the changing scenarios accordingly. With that said, let’s take a look at how the changes in the fiscal policy will affect businesses.

1. Changes in the Investment Opportunities: Investment is a crucial aspect of modern-day business and it is a crucial part when it comes to increasing your cashflow and possibly expanding your business. When money is flowing in the economy, it means that business will have better investment opportunities and they will be able to grow and thrive in that kind of scenario. With the changes happening in the fiscal policy, the government spending will fluctuate and that means if the spending dip, then there will be less money in the economy which will result in less investment opportunities for businesses. This will result in less money to deal with for business and so it will be hard for future expansion plans and running of businesses.

The fiscal policy is a crucial economic tool that can be used by the government to change the workings of the economy. This means that, businesses should always be careful of the changes in the fiscal policy so that they can adjust accordingly

2. There will be Slower Growth: In line with the above-mentioned point, it will hard for business to thrive in the economy if the fiscal policy is against them and with less money in the economy, the business will also not perform in an optimal manner. So, during times where there is less money in the economy, it is important that business owners cut down unwanted slack and streamline your operations in such a way that you reduce your unwanted expenses and try to increase your revenue so that you can carry on your day-to-day operations without having to stop it.

3. Changes in Taxation Rates: With the fluctuations in the fiscal policy, depending on your location, you will face different levels of taxation and owing to the fact that there are local tax, tax given to the state as well as the federal tax, it is crucial that you look into how your local and state tax interweaves with the fiscal policy of the federal government.

4. The Unemployment Rates: As mentioned before, one of the important objectives of adjusting the fiscal policy is to reduce the rate of unemployment. By reducing the tax rates, the government can inject more money into the economy. This will ensure that there are more money in the hands of the people and there is more demand for products as well as services. This increased business makes companies to hire more people to keep up with the demand which will reduce the unemployment rates.

The fiscal policy is a crucial economic tool that can be used by the government to change the workings of the economy. This means that, businesses should always be careful of the changes in the fiscal policy so that they can adjust accordingly.

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