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i. Interest rate policy. The government can exert direct control over the level of interest rates. It
might pursue a high interest rate policy with the primary purpose of restricting consumer credit, and
one side effect of this will be to raise the cost of finance for companies. However, such a policy can
also be of help to a company since it may serve to attract foreign investment and thus improve the
availability of finance. High interest rates will also serve to support the exchange rate, and this may
reduce the need for external financing for importers since they are able to generate funds internally
through better margins.
A low interest rate policy is often pursued with the aim of promoting industrial growth. The cost of
finance to industry is reduced, allowing firms to compete more easily against foreign competition.
The currency is likely to be weaker, and therefore exporters are able to earn better margins and to
generate more funds internally.
ii. Demand management. The government will often try to achieve growth in aggregate demand
by creating conditions which promote industrial investment and which seek to improve the balance
of payments. This may involve help for exporters who are again able to earn better margins and
thus to generate more funds internally.
iii. Encouragement of free market forces. Governments try to stimulate economic growth (and
therefore investment) by a greater liberalization of markets and by attempting to open up wider
global markets
iv. Regional aid. This can be administered on a national and on a reginal level. The aim is to help
areas with a depressed local economy to achieve economic growth. In order to do this direct grant
aid may be available to companies who locate in assisted areas.
v. Selective national assistance. Where the government wishes to promote the development of a
particular industrial sector that is seen to have strategic importance for the national economy,
assistance may be given.
vi. Fiscal incentives. The government may seek to encourage investment through the tax system.
Capital allowances are available on capital expenditure, and the fact that corporation tax is collected
in arrears, can help company cash flows.
vii. Export Credit Guarantee Department. This provides long-term guarantees to banks on behalf of
exporters.
Kavungya answered the question on April 14, 2021 at 19:05
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