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Business Studies A Level > 3. External Influences > Flashcards

3. External Influences Flashcards

Term 3 Miss Blackwell (Economic Factors)

1
Q

What does GDP stand for?

A

Gross Domestic Product

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2
Q

What is GDP?

A

The total value of output produced in an economy in a year

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3
Q

How does an increase in GDP link to the economy?

A

Economy is expanding

more wealth and more new jobs

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4
Q

How does a decrease in GDP link to the economy?

A

Economy is shrinking

less wealth and job cuts

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5
Q

How to calculate a percentage change?

A

Difference/original x 100

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6
Q

Economic growth

A

The annual percentage change in GDP

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7
Q

Example:
2015 –> 3%
2016 –> 2%

A

Economy is still growing but just at a slower rate

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8
Q

How can the government facilitate economic growth?

A
  1. Offer subsidies/lower tax non physical capital to encourage investment
  2. Improve infrastructure - better transport links
  3. Investing in education - improvement in quality of human capital
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9
Q

What are the 2 main ways that businesses can facilitate economic growth?

A

Invest in human capital or invest in physical capital

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10
Q

Standard of Living

A

The amount of goods and services a person can buy with their income in a year

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11
Q

What is the limitation of the standard of living indicator?

A

It is an average and so is distorted by people with the most money

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12
Q

Happiness indicator

A

Are people happier just because they have more money?

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13
Q

Inflation

A

Persistent general tendency of prices in the economy to rise

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14
Q

Consumer Price Index (CPI)

A

A measure that examines the weighted average of prices of a basket of consumer goods/services

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15
Q

What is the current level of inflation?

A

2.4%

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16
Q

What is the inflation target?

A

2%

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17
Q

Explain 3 impacts of high inflation?

A
  • UK exports uncompetitive - other countries: cheaper
  • Reduced multinational investment - prices generally rising? Workers demand higher wages
  • Cannot be sure of future prices and so what your profits will buy you
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18
Q

Exchange Rate

A

The value of one currency in terms of another

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19
Q

What is meant by a strengthening exchange rate?

A

Pound increasing value

A pound will buy more of a foreign currency

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20
Q 
S
P
I
C
E
D
A 
Strong
Pound
Imports
Cheap
Exports 
Dear
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21
Q

What is meant by a weakening exchange rate?

A

Pound decreasing in value

A pound will buy less of a foreign currency

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22
Q

Weak pound…
Imports -
Exports -

A

Imports - Dear

Exports - Cheap

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23
Q

What are imports?

A

Goods coming into the country

Result in money leaving the country

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24
Q

What are exports?

A

Goods exiting the country

Result in money coming into the country

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25
Q

Factors affecting the value of the pound (3)

A
  1. “Hot money” flows into the UK
  2. Foreign investment
  3. Desire of foreign customers to buy UK exports
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26
Q

How do “hot money” flows affect the value of the pound?

A

Foreign banks use UK banks for highest possible rate of interest = increased demand for pound = price increases = increase in value

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27
Q

How does foreign investment affect the value of the pound?

A

Foreign businesses will have to use the pound to pay UK construction companies = increase in demand for pound

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28
Q

How do the desires of foreign customers to buy UK exports affect the value of the pound?

A

If the level of demand for UK exports is high then the pound strengthens

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29
Q

Rate of Interest

A

The cost of borrowing and the reward for saving expressed as a percentage

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30
Q

Who is responsible for the setting of the interest rate?

A

Bank of England (MPC - Monetary Policy Committee)

31
Q

What is the current rate of interest?

32
Q

How are businesses affected by a lower interest rate?

A

May see an increase in sales

Lower loan repayments - more likely to apply for a loan and invest

33
Q

How are borrowers affected by a lower interest rate?

A

Lower repayments - more disposable income

34
Q

How are savers affected by a lower interest rate?

A

Less of an incentive - more likely to spend than save

35
Q

What does a low interest rate mean in terms of the value of the pound?

A

It is weaker?

36
Q

What is the key term related to interest rate?

A

Monetary Policy

37
Q

Monetary Policy

A

Manipulation of the level of demand in the economy using the rate of interest

38
Q

How does an increase in the interest rate affect inflation?

A 
Rate of interest increases
More people incentivised to SAVE
Demand for products decreases
Less upward pressure on prices rising
Inflation falls
39
Q

Unemployment

A

A situation where people who are willing and able to find work are not able to find employment

40
Q

Why does the government want a low level of unemployment?

A
  1. These people could be contributing to GDP
  2. Social problems + benefits have to be paid for
  3. Lower unemployment level = more revenue from tax
  4. Unemployment is bad for the individual: alcohol, drugs, crime
41
Q

What is meant by the balance of trade payments?

A

The difference between the value of exports and imports

42
Q

Exports > Imports

43
Q

Exports < Imports

44
Q

How would a weak pound affect the balance of trade payments?

A

Weak pound = trade surplus

Greater demand for products as they are cheap

45
Q

What is tax?

A

Tax is a government method of generating revenue and deterring certain behaviours

46
Q

What are indirect taxes?

A

Taxes on spending, paid by the supplier

47
Q

What are direct taxes?

A

Taxes on income and profits, paid by the bearer to the tax authorities

48
Q

What percentage of GDP is government spending?

49
Q

What is income tax?

A

A direct tax

Taken out of employee’s incomes

50
Q

What is national insurance?

A

A direct tax
Contributes to the state pension and NHS
Employee and employer pay

51
Q

What does VAT stand for?

A

Value Added Tax

52
Q

What is the standard rate of VAT?

53
Q

What is a benefit to the business of VAT?

A

They can reclaim VAT charged and competitors do not know turnover

54
Q

How would an increase in VAT affect a business?

A

Rise prices/ accept a lower mark-up

55
Q

What is corporation tax?

A

A tax charged on profits

56
Q

What is the current rate of corporation tax?

57
Q

What is stamp duty?

A

A tax which (dis)encourages demand for housing

58
Q

What is alcohol tax?

A

A tax on cheap alcohol discourages consumption as the product price is less attractive

59
Q

What is the key term relating to tax?

A

Fiscal policy

60
Q

Fiscal policy

A

Economic policy conducted by the government through taxation and public (government) spending

61
Q

Subsidies/grants

A

Payments from the government to the supplier that reduce their costs

62
Q

How do subsidies affect market equilibrium price?

A

Reduced price due to increased supply

63
Q

Multiplier effect

A

The effect of changes in economic activity in 1 sector on other sectors

64
Q

What do supply-side policies aim to achieve?

A

Aim to improve the economy’s overall productive capacity

65
Q

Examples of supply-side policies?

A

Investment in education: more skilled people produce more output

66
Q

The Business Cycle

A

The upward and downward movement of GDP around its long term growth trend

67
Q

What is the stage of the business cycle determined by?

A

GDP and growth on previous quarters

68
Q

What are the 4 stages of the business cycle?

A

Boom
Recession
Slump
Recovery

69
Q

How is income and unemployment affected at each stage of the business cycle?

A

Boom: high incomes and low unemployment
Recession: falling incomes and rising unemployment
Slump: low incomes and high unemployment
Recovery: slowly rising incomes and slowly falling unemployment

70
Q

Boom/Recovery Key Points

A
  • Inflation higher than target (increase in demand leads to prices generally rising)
  • Customers spend more and so need for jobs is greater
  • Investments made to meet demand
71
Q

Recession/Slump Key Points

A
  • Inelastic products? Trade similarly
  • Investments - unlikely to see demand
  • Conserve cash - precaution
  • Discount supermarkets and B&Q more demand
  • MPC may lower interest rate to stimulate economy
72
Q

How to respond to a recession/slump?

A
  1. Redundancies
  2. Intense promotional activity
  3. Reduce production
  4. Less stock holding
  5. Only essential investments
73
Q

How can businesses use the business cycle to their advantage?

A
  1. Buy shares when cheap (recession) and sell in boom
  2. “Essentials” range
  3. During recovery, expand premises to meet demand for boom
  4. Buy cheap land/buildings during recession and sell during boom

Business Studies A Level (17 decks)

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