Chapter 13.5, Problem 3R

To determine

The two ways in which government affects business activity.

Explanation of Solution

Government affects business activity in the two ways explained below:

1. The government affects the business by its way of spending and applying taxes. Increase in government spending causes expansion in economic activities. Also, the economic activities depend on the increase and decrease of tax rates.

2. Government also affects the business activities by controlling the money supply in the economy. When more money flows in the economy, business activities increase and vice versa.

Economics Concept Introduction

Introduction:

Business fluctuations- The up and down that an economy suffers due to business activities are termed as business fluctuations. The fluctuations in the business show the different phases which an economy is facing. So, business fluctuations can be used for analyzing and making strategic decisions.