Business the Economy and Government Flashcards
Explain recession
Defined as a period of significant economic decline lasting for over six months. It’s characterised by a fall in sales, production and employment in the economy
Explain economic growth
Defined as an increase in value of goods and services produced in the economy over time
Explain inflation
Annual percentage increase in the level of prices in the economy measuring using the consumer price index
Name five economic variables
Inflation Interest rates Unemployment Exchange rates Taxation
Why is high inflation bad for a business
Employees want higher wages as they cannot afford higher prices in shops so increases costs lowers profits
Makes product more expensive. Consumers buy less and there is lower demand
Costs of what business buys is more expensive increasing costs lowering profits
Explain interest rates
The cost of borrowing money expressed as a percentage of the amount borrowed
Irish interest rates are set by the European Central Bank (ECB)
An increase in interest rates means the cost of borrowing money increases
Explain the effects of rising interest rates on a business
Less business expansion- many will not be able to afford higher repayments on loans. No borrowing
Less demand-less disposable income as mortgage repayments increase
Costs increase with lower profits - repayments increase
Explain unemployment
Percentage of the labour force that does not have a job
Ireland’s current unemployment rate is: 4.8%
Explain how high levels of unemployment impact on businesses
Lower Sales- not large disposable income so decrease in spending
Easier to recruit new staff-
more people looking for fewer jobs, large pool for hiring.
Increase in security costs - increased crime
People will be willing to work for lower wages
Increased Taxes- pay more in social welfare so they increase taxes on businesses and people who are in work.
Explain exchange rates
Tells you how much €1 is worth in terms of another currency
It impacts businesses very heavily
Explain the impact of exchange rates on a business
Reduction in export sales outside Eurozone - euro increases in value price of Irish products sold outside of the Eurozone increases.
Less Sales for Irish Business-
euro value increases, the price of non-Eurozone goods decreases, decreasing the demand for Irish products
Cost of imports decreases- cost of non-Eurozone goods decreases,lowers cost for Irish businesses of importing goods
Explain taxation
Tax is a compulsory payment that must be made to the government in return for the benefits of living or doing business in Ireland.
Examples of Taxation: PAYE, PRSI
What are the effects of taxes increasing in the economy on the business
reduction in profit and less business expansion - more tax
Increased costs with accountants - bigger burden of working out taxes themselves
Lower demand- high payroll taxes mean less disposable income
Sales fall with high VAT as consumers cant afford new tax
What is the positive impact Irish businesses have on the economy?
Job creation
Purchasing Irish materials and services
Low inflation
wealth Creation
What is the negative impact Irish businesses have on the economy?
Increase in Prices
Damage to the environment
Increased pressure on infrastructure
Increased competition
Explain job creation as a positive impact that Irish businesses have on the economy
This leads to lower unemployment in the economy, decreased social welfare payments and increase tax take for the government.
Example: Dunnes Stores employ roughly 10,00 people
Explain purchasing irish materials and services as a positive impact that Irish businesses have on the economy
Businesses support each other and buy goods and services within Ireland – benefiting economic growth.
More wealth for economy
Ex: Tayto buy potatoes from irish farmers
Explain low inflation as a positive impact that Irish businesses have on the economy
Competition between businesses forces them to keep prices low. This results in low inflation which is good for consumer spending.
Example: Lidl and Aldi Vs Tesco
Explain wealth creation as a positive impact that Irish businesses have on the economy
Businesses create wealth for it’s owners (profits) and employees (wages) which leads to more spending within the economy.
Leads to more business and more wealth
Explain Increase in Prices
as a negative impact that Irish businesses have on the economy
Some businesses increase prices to increase their profits during certain periods
Lead to higher inflation in the economy
Example: Ryanair increasing baggage prices during the summer
Explain damage to the environment
as a negative impact that Irish businesses have on the economy
Some businesses damage the environment by failing to dispose of waste properly to keep costs to a minimum
damage tourism and food industries
Explain increased pressure on infrastructure as a negative impact that Irish businesses have on the economy
slows down transportation and increases the cost of doing business
Example: traffic jams on the M50 due to a number of shopping centre located off the motorway.
Explain increased competition
as a negative impact that Irish businesses have on the economy
This can lead to smaller businesses closing down and an increase in unemployment
Many factories in Ireland cannot compete with lower waged economies so government have less money with these closing down creating unemployment
Five ways the government works hard to create a suitable climate for Irish businesses to operate in
Government Expenditure Government Agencies Government Taxation Government Grants Government Regulation
Explain government expenditure
This is money that the state spends each year
Current Spending – day to day spending on items that will be used up within one year e.g wages of state employees
Capital Spending – spending on items that will last longer than one year e.g schools, hospitals
hat are the benefits of government expenditure
Increased Sales and Profits for businesses-biggest consumer of goods/services
Strong Infrastructure-
spends maintaining and updating infrastructure – easier to do business
Financial Aid- provide grants and support Irish businesses
Encourages Consumer Spending-one of the largest employers in Ireland and provides social welfare allowing customers to spend money in economy and boosting businesses trade
Explain government agencies and name four
These are state-owned agencies that were set up to help business people Enterprise Ireland IDA Ireland Fáilte Ireland Bord Bia (Irish food board)
Explain what IDA Ireland do
Responsible for attracting foreign direct investment into Ireland by offering grants and promoting Ireland’s low corporation tax
It offers funding and grants to business and provides them with information and contacts they can use to help them start up in Ireland
Explain enterprise Ireland and what they do
Helps set up indigenous Irish businesses by providing training, grants and investment.
It helps them achieve global success and win export sales on global markets
It provides helpful advice and information guiding them to success
Name seven taxes the government impose on Irish businesses
Value Added Tax (VAT)
Employer’s Pay Related Social Insurance (PRSI)
Self-Assessment Income Tax (for self-employed people)
Corporation Tax
Pay As You Earn (PAYE)
Universal Social Charge (USC)
Explain what effect lower taxes have on a business and why it creates a suitable climate in the economy for business enterprise
Cheaper goods and services for consumers- higher demand and sales
Increased net (take home) pay for individuals and more disposable income for entrepreneurs and employees
Less taxes to pay- less admin
More profits to finance expansion
Reduction in business costs - fees for accountants and tax of profits
Explain a government grant
A grant is money given to a business by the government to spend on current or capital items.
The grant does not have to be repaid provided that certain conditions are met by the business
Explain how government grants create a suitable climate for business enterprises
Makes it cheaper to set up a business as its a free source of financial aid
Attracts transnational companies to set up in Ireland- creates jobs for Irish people and benefits the Irish economy
Explain government regulation
Regulation refers to the laws that the Irish government has passed in order to control the activities of businesses to protect both consumers and businesses.
It regulates trade for the good of society
Ex: competition Act 2002
Sales of Goods and Supply of Services Act 1980
Unfair Dismissals Act 1977/2007
Explain the labour force
comprises of all those people who are either in work or are looking for work - all those available for work
How does the government affect the labour force
Lower/High taxation
Government expenditure
Government regulation
Government as an employer
Explain low/high taxation as a way the government affects the labour force
Government recently reduced tax on wages
Leaves employees with greater disposbale income and better standard of living
USC introduction highered taxes
Explain government expenditure as a way the government affects the labour force
The government spends money on infrastructure and services that will benefit the Irish people e.g spending on health, education
This spending has developed the ‘smart economy’ in Ireland and has attracted a lot of FDI into the country providing Irish employees with challenging well paid jobs
Explain government regulation as a way the government affects the labour force
The government has passed laws that protect the labour force from unfair treatment by employers
Gives them guaranteed rights and protection
Example: Unfair Dismissals Act 1977 / 2007, Minimum Wage legislation
Explain government as an employer as a way the government affects the labour force
The Irish government is the largest employer in Ireland
The government employs people in the civil service, public service and state-owned enterprises
Increases the number of jobs available to people in the labour force
