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How does the government influence businesses?

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Quick Answer

The government influences businesses through its control of fiscal and monetary policy as well as its ability to establish and abolish laws and regulations concerning how businesses can operate. By combining these control mechanisms, the government can have both a direct and indirect effect on various markets and industries.

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Full Answer

One of the biggest methods of government influence on businesses is its control over fiscal and monetary policy. By controlling interest rates, the government can make money for capital investments or loans more or less available. This control also has an indirect impact on inflation and unemployment rates.

The government can also exercise direct control over the import/export industries through the implementation of quotas and tariffs. By creating quotas on imports, the government can limit the amount of specific import products entering the country, reducing competition in those areas to keep prices higher than they might have been while competing. By raising or lowering tariffs, the government also controls specific industries, increasing or decreasing competition by making it less or more expensive for foreign-made products to be sold in the country.

New laws and regulations created by the government also have a direct affect on businesses by limiting business operations. Laws and regulations can make it difficult for a business to operate without restrictions, lowing profit possibilities. They can also make it more or less difficult for new companies to enter into an already established industry, reducing or creating competition in the process.

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