Question

Name a country (other than USA) and an industry in that country that can be affected by macroeconomic fiscal, monetary or trade policy (e.g., marginal tax rates, reducing the rate of growth in the money supply, or signing a free trade agreement with a key trading partner).

What are the likely outcomes that will result from the policy (positive/negative impacts)?

What issues or debates have been raised about the policy?

Answer 1

Country chosen is India

Industry chosen is Automobile Industry

Automobile Industry is highly affected by Fiscal, Monetary and Trade Policies.

Fiscal Policy mainly deals with government revenue and expenditures fromvarious sources. It covers the Direct or Indirect Taxes collected by the government.

As the government raises the Income Tax collected from the public, they would be left with less disposable income. Car being a luxury good , public is little calculative while purchasing. If the public is left with less disposable income, so they spend less on purchasing cars and the demand of cars reduces. At the same time high Sales Tax on cars will make the cars more expensive and thus the demand reduces.

On the other hand if the Income tax is reduced, public is left with higher disposable income and thus the demand of cars increases. Less Sales Tax on the cars make it less expensive and thus the demand increases.

Monetary Policy affects the cash floating in the market in the form of loans. If the Government raises the Cash Reserve Ratio and Repo Rate, less cash would be available for public in the form of loans and thus the demand of cars reduces.

On the other hand, lower CRR and Repo Rate, would make easy loans availbale for public and thus the demand of cars increases.

Trade Policy deals with customs and import-export duties imposed on the goods. Higher customs and import duty would make the cars more expensive reducing the demand of the cars.

Lower customs and import duty would reduce the price of the cars making it less expensive and thus the demand of the cars increases.

Fiscal Policy only deals with government revenue and expenditure. It doesnt affect the availability of money in the market.

Monetary Policy affects the cash floating in the market.

Trade policy only deals with exported and imported goods.