3.7.5 Flashcards
What does GDP stand for, and what does it indicate about the economy?
GDP stands for Gross Domestic Product, and it is an important indicator of the economy’s state. A rising GDP indicates economic growth, while a falling GDP signals a contracting economy or recession.
How does taxation affect business decisions?
Taxation, specifically corporation tax, can significantly influence where global businesses choose to invest. A higher tax rate might discourage investment, while a lower tax rate may encourage businesses to operate in that country.
What is the impact of exchange rate changes on UK businesses?
A rise in the value of sterling (appreciation) makes UK exports more expensive and imports cheaper. Conversely, a fall in the value of sterling (depreciation) makes exports cheaper and imports more expensive. UK exporters benefit from a weaker pound, but firms importing goods may face higher costs.
What is inflation, and what are its common measures?
Inflation is the sustained increase in the average price of goods and services, which reduces the purchasing power of money. The common measures of inflation are the Retail Price Index (RPI) and the Consumer Price Index (CPI), with the latter being used by the UK government for its inflation target of 2%.
How does high inflation benefit businesses?
Businesses can benefit from high inflation if they have large loans, as the real value of loan repayments decreases. Rising property and stock values can also strengthen balance sheets, and businesses can more easily pass on price increases to customers.
What are the problems businesses face during high inflation?
High inflation can squeeze cash flow due to rising costs of materials and equipment, create forecasting uncertainty, increase price sensitivity among consumers, and lead to more wage demands and labor disputes.
What are the main economic objectives of the government?
The government’s main economic objectives are:
Price stability (around 2% inflation)
Steady and sustained economic growth (2–3% per year)
Low unemployment (below 5%)
A balanced balance of payments (avoiding large deficits)
What are the two types of economic policies governments use to manage the economy?
The two types of economic policies are:
Fiscal policy – managing tax levels and government spending
Monetary policy – managing interest rates and money supply
What is the effect of a rise in interest rates on businesses?
A rise in interest rates can increase borrowing costs for businesses, reduce consumer spending, and slow down economic growth, leading to potential decreased demand for products and services.
What is the difference between open trade and protectionism?
Open trade refers to international trade without restrictions, such as tariffs and quotas. Protectionism involves government policies, like tariffs and quotas, that limit imports and restrict free trade to protect domestic industries.
What factors contribute to greater globalisation?
Factors contributing to globalisation include government support, falling costs of transport and communications, the growth of global trading blocs, increasing global incomes, and the expansion of multinational companies.
What are some benefits of globalisation for businesses?
Benefits of globalisation include increased sales and profits, access to cheaper resources, economies of scale, and the ability to develop different products for different markets.
What are some challenges businesses face due to globalisation?
Challenges include downward pressure on prices due to increased competition, threats from new entrants, the need for significant investment to remain competitive, and the risk of being acquired through a takeover.
Why are emerging economies important to businesses?
Emerging economies, such as those in the BRIC and MINT countries, are important because they offer a large labor force, rapid growth, increasing disposable incomes, and abundant natural resources, all of which provide opportunities for businesses.
