GCSE-ready- Home
- Lessons
- GCSE & IGCSE Business
- Government and business
Government and business
🎬 The doodle video for this lesson is coming soon. Subscribe on YouTube to see it first.
Governments spend money, make laws and set policies that shape what businesses can do.
Government spending and tax
Governments provide public services such as health, education, defence and roads.
These are paid for mainly by taxation. Spending is limited (constrained) by how much tax can be raised and how much the government can sensibly borrow.
Higher taxes reduce what consumers spend and what businesses keep as profit.
These are paid for mainly by taxation. Spending is limited (constrained) by how much tax can be raised and how much the government can sensibly borrow.
Higher taxes reduce what consumers spend and what businesses keep as profit.
How governments affect business
Infrastructure: roads, railways, ports and broadband help businesses move goods and communicate.
Legislation: laws on employment, consumers, the environment and location (for example planning permission and rules on where factories can be built).
Trade policy: joining a trading bloc removes tariffs between members; tariffs on imports protect domestic firms. Firms may locate inside a bloc to avoid its tariffs.
Legislation: laws on employment, consumers, the environment and location (for example planning permission and rules on where factories can be built).
Trade policy: joining a trading bloc removes tariffs between members; tariffs on imports protect domestic firms. Firms may locate inside a bloc to avoid its tariffs.
Interest rates
Interest rates are usually set by a country's central bank.
Higher rates: loans and overdrafts cost more, so businesses invest less; consumers borrow less and save more, so spending falls.
Lower rates: borrowing is cheaper, so investment and consumer spending usually rise.
Higher rates: loans and overdrafts cost more, so businesses invest less; consumers borrow less and save more, so spending falls.
Lower rates: borrowing is cheaper, so investment and consumer spending usually rise.
A car maker outside a trading bloc pays a 10% tariff to sell inside it. Why might it build a factory inside the bloc?
- Goods made inside the bloc can be sold to members tariff-free.
Answer: To avoid the tariff and be more price-competitive.
Governments fund public services through taxes, provide infrastructure, pass laws (including on location) and set trade policy. Higher interest rates raise borrowing costs and cut spending.
Check you have got it
Answer 7 quick questions with instant marking. If you get one wrong, GCSE-ready shows you why and gives you another go. It is free, and you do not need an account.