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'knock-on' effect
throughout the economy of government spending; that is, companies 
might supply companies which in turn supply the Government. 
(c) Taxation 
affects 
consumers' purchasing power
. 
(d) 
Taxes
on company profits and tax allowances affect the after-tax return on investment that 
companies achieve. 
(e) 
Investment 
by the public sector will tend to be directed towards activities in which the public 
sector is involved or on fulfilling social needs. Hence industries in these fields will benefit. 
(f) 
Public sector investment might have a longer 
time scale
(eg health) or have less quantifiable 
economic benefits (eg education) than the private sector is able to cope with.
8.3 Economic planning 
At one time, many people believed the Government should plan economic activity in detail. This is now 
out of favour, perhaps as a result of the failure of communism in the eastern bloc. In this model, 
government is a 
director
of economic activity. 
Economic planning on a lesser scale, with the Government as an 
enabler
of private sector activity and as 
corrector of market imperfections, is now seen by many as more appropriate. 
(a) 
Government's most important economic role is the legal system relating to business. Law relating 
to property, contracts in corporation, competition, employment, and so on provides a framework 
which enables businesses to be done with confidence. 
(b) 
Government also has a responsibility for macroeconomic management. Such management, like 
the legal framework, should provide stable conditions in which business can operate with 
confidence. 
(c) 
Governments can raise 
trade barriers 
to protect domestic industry, although the trend has been 
to lower such barriers. 
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CHAPTER 3
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THE MACROECONOMIC ENVIRONMENT