Task 2: Monetary and Fiscal PoliciesP3: Describe how fiscal and monetary policy decisions have affected a selected company.M2: Analyze the effects of fiscal and monetary policies for a selected company in terms of the market in which Tesco operates as any company will be affected by monetary and fiscal policies, directly or indirectly. Tesco PLC will be affected more indirectly by these policies and in this report I will explain how. Fiscal policy requires the government to change the levels of taxation and public spending in order to influence AD ​​(aggregate demand) and therefore the level of economic activity. Monetary Policy involves using interest rates or changes in the money supply to influence consumer spending levels and aggregate demand. The government's objectives are:1. Low inflation CPI = 2%2. Strong economic growth.3. Reduce unemployment4. To avoid a large deficit in the current account balance of payments. Fiscal Policy Fiscal policy can be expansionary or deflationary. Currently the policy is expansionary. This leads to an increase in AD, so the government will increase spending and cut taxes. The tax cut will increase consumer spending because they will have more disposable income. This will worsen the government's budget deficit. The other method is deflationary fiscal policy which involves reducing AD, so the government will cut spending and/or increase taxes. Tax increases will reduce consumer spending. This will lead to an improvement in the government's budget deficit. Tesco will be affected by direct and indirect taxation which in turn impacts business costs, aggregate demand and therefore business revenues. Direct taxation...... half of paper... social banks and the consumer must decide how to move forward. The Bank of England first pumps money into all the commercial banks, this is done by purchasing assets such as bad debts from them. This will cause commercial banks to lend more money to consumers. As consumers we must therefore spend this money increasing demand and therefore overall sales. If sales increase, profits will also be higher. This is a good thing for Tesco - greater demand for their products allows them to grow and expand through increased profits. When an economy is in recession, the government must act differently to increase demand and help businesses survive. The money supply method of monetary policy is a good idea in theory, but due to the current economic crisis, banks do not feel confident enough to lend money as the return is not guaranteed.