BUSINESS ENVIRONMENT (2) Flashcards
The economist’s idea of ———- centres on the relationship between a society’s needs and wants and the resources available to satisfy them
‘scarcity’
In the centrally planned economy, the state and its agencies. Under this arrangement, the state typically:(Features)
- owns and/or controls the main economic resources;
- establishes priorities in the use of those resources;
- sets output targets for businesses which are largely under state ownership and/or control;
- directs resources in an effort to achieve these predetermined targets; and
- seeks to co-ordinate production in such a way as to ensure consistency between output and input demands.
All too often consumers tend to be faced by queues and ———- for some consumer products and overproduction of others, as state enterprises strive to meet targets frequently unrelated to the needs and wants of consumers.
‘black markets’
The key features of Free market Economy of economic system are as follows:
- Resources are in private ownership and the individuals owning them are free to use them as they wish.
- Firms, also in private ownership, are equally able to make decisions on production, free from state interference.
- No blueprint (or master plan) exists to direct production and consumption.
- Decisions on resource allocation are the result of a decentralised system of markets and prices, in which the decisions of millions of consumers and hundreds of thousands of firms are automatically co-ordinated.
- The consumer is sovereign, i.e. dictates the pattern of supply and hence the pat- tern of resource allocation.
macroeconomics recognises the ——-a——- nature markets and studies the interaction in the economy as a whole, dealing with such questions as the overall level of employment, the rate of —-b—–, the percentage growth of output in the economy and many
other economy-wide aggregates -
a interdependent
b inflation
These flows of income and ———-accordingly represent the fundamental activities of an economy at work
expenditure
———- can be portrayed as a flow of economic resources into firms (i.e. productive organisations), which are used to produce output for consumption, and a corresponding flow of payments from firms to the providers of those resources, who use them primarily to purchase the goods and services produced.
Economic activity
Equally, from time to time an economy may be subject to
——— such as the onset of recession among its principal trading partners or a significant price rise in a key commodity (e.g. the recent oil price in 2014/15), which can have an important effect on internal income flows.
‘external shocks’,
The————— emphasis the reverberative consequences of any increase or decrease in spending by consumers, firms, governments or overseas buyers.
multiplier effect
———– is the term used to describe a change in investment spending by firms as a result of a change in consumer spending.
‘accelerator effect
Example of an accelerator effect; it is possible that the increase in consumption caused by the increase in government spending may persuade some firms to invest in more——–and——- to meet increased consumer demands
stock and capital equipment
Should consumer spending fall, a ————— may occur and the same would apply to the multiplier as the reduction in consumption reverberates through the economy and causes further cuts in both consumption and investment.
reverse accelerator
Aggregate Monetary Demand = AMD=C+1+G+X-M meaning
Consumer spending +Investment spending
+ Government spending + Export spending
- Import spending or
———– is usually defined as an upward and persistent movement in the general level of prices over a given period of time;
Inflation
Explanations as to why prices tend to rise over time vary considerably, but broadly speaking fall into two main categories.
First, supply-siders tend to focus on rising production costs -
particularly wages, energy and imported materials - as a major reason for inflation, with firms passing on increased costs to the consumer in the form of higher wholesale and/or retail prices.
Second, excessive demand in the economy, brought about, for example, by tax cuts, cheaper borrowing or excessive government
spending, which encourages firms to take advantage of the consumer’s willingness to spend money by increasing their prices.
A country’s ———– is essentially the net balance of credits (earnings) and debits (payments) arising from its international trade over a given period of time.
balance of payments
Where credits exceed debits a balance of payments surplus exists; whereas where debit exceed debit it is described as a ———
deficit.
Governments raise large amounts of revenue annually, mainly through———- and use this income to spend on a wide variety of public goods and services.
taxation
Where annual revenue exceeds government spending, ——— occurs and the excess is often used to repay past debt.
a budget surplus
A country’s currency has two values: ————-and————-
an internal value and an external value.
———–involves the use of changes in government spending and taxation to influence the level and composition of aggregate demand in the economy and, given the amounts involved, this clearly has important implications for business
Fiscal policy
——————— seeks to influence monetary variables such as the money supply or rates of interest in order to regulate the economy
Monetary policy
Lower interest rates not only encourage firms to invest as the cost of borrowing falls, but also encourage—-A—- as disposable incomes rise and as the cost of loans and —-B—- decreases.
A. consumption
B.overdrafts
The fact is that a reduction in interest rates to boost output and growth in an economy also tends to be reflected in the ————
exchange rate
