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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
Factors affecting the value of the pound (3)
1. "Hot money" flows into the UK 2. Foreign investment 3. Desire of foreign customers to buy UK exports
26
How do "hot money" flows affect the value of the pound?
Foreign banks use UK banks for highest possible rate of interest = increased demand for pound = price increases = increase in value
27
How does foreign investment affect the value of the pound?
Foreign businesses will have to use the pound to pay UK construction companies = increase in demand for pound
28
How do the desires of foreign customers to buy UK exports affect the value of the pound?
If the level of demand for UK exports is high then the pound strengthens
29
Rate of Interest
The cost of borrowing and the reward for saving expressed as a percentage
30
Who is responsible for the setting of the interest rate?
Bank of England (MPC - Monetary Policy Committee)
31
What is the current rate of interest?
0.75%
32
How are businesses affected by a lower interest rate?
May see an increase in sales | Lower loan repayments - more likely to apply for a loan and invest
33
How are borrowers affected by a lower interest rate?
Lower repayments - more disposable income
34
How are savers affected by a lower interest rate?
Less of an incentive - more likely to spend than save
35
What does a low interest rate mean in terms of the value of the pound?
It is weaker?
36
What is the key term related to interest rate?
Monetary Policy
37
Monetary Policy
Manipulation of the level of demand in the economy using the rate of interest
38
How does an increase in the interest rate affect inflation?
``` Rate of interest increases More people incentivised to SAVE Demand for products decreases Less upward pressure on prices rising Inflation falls ```
39
Unemployment
A situation where people who are willing and able to find work are not able to find employment
40
Why does the government want a low level of unemployment?
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
What is meant by the balance of trade payments?
The difference between the value of exports and imports
42
Exports > Imports
SURPLUS
43
Exports < Imports
DEFICIT
44
How would a weak pound affect the balance of trade payments?
Weak pound = trade surplus | Greater demand for products as they are cheap
45
What is tax?
Tax is a government method of generating revenue and deterring certain behaviours
46
What are indirect taxes?
Taxes on spending, paid by the supplier
47
What are direct taxes?
Taxes on income and profits, paid by the bearer to the tax authorities
48
What percentage of GDP is government spending?
40%
49
What is income tax?
A direct tax | Taken out of employee's incomes
50
What is national insurance?
A direct tax Contributes to the state pension and NHS Employee and employer pay
51
What does VAT stand for?
Value Added Tax
52
What is the standard rate of VAT?
20%
53
What is a benefit to the business of VAT?
They can reclaim VAT charged and competitors do not know turnover
54
How would an increase in VAT affect a business?
Rise prices/ accept a lower mark-up
55
What is corporation tax?
A tax charged on profits
56
What is the current rate of corporation tax?
19%
57
What is stamp duty?
A tax which (dis)encourages demand for housing
58
What is alcohol tax?
A tax on cheap alcohol discourages consumption as the product price is less attractive
59
What is the key term relating to tax?
Fiscal policy
60
Fiscal policy
Economic policy conducted by the government through taxation and public (government) spending
61
Subsidies/grants
Payments from the government to the supplier that reduce their costs
62
How do subsidies affect market equilibrium price?
Reduced price due to increased supply
63
Multiplier effect
The effect of changes in economic activity in 1 sector on other sectors
64
What do supply-side policies aim to achieve?
Aim to improve the economy's overall productive capacity
65
Examples of supply-side policies?
Investment in education: more skilled people produce more output
66
The Business Cycle
The upward and downward movement of GDP around its long term growth trend
67
What is the stage of the business cycle determined by?
GDP and growth on previous quarters
68
What are the 4 stages of the business cycle?
Boom Recession Slump Recovery
69
How is income and unemployment affected at each stage of the business cycle?
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
Boom/Recovery Key Points
- 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
Recession/Slump Key Points
- 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
How to respond to a recession/slump?
1. Redundancies 2. Intense promotional activity 3. Reduce production 4. Less stock holding 5. Only essential investments
73
How can businesses use the business cycle to their advantage?
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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