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Business, the economy and the government Flashcards

1
Q

What is economic growth

A

any increase in the financial value of all the goods and services provided from the country’s resources. The government will use economic growth as an indicator of economic activity.

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2
Q

What is GDP

A

Gross Domestic Product
measures the value of goods and services produced in a country. This includes goods and services produced by foreign-owned businesses that are located in the country.

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3
Q

What is GNP

A

Gross National Product
measures the value of goods and services produced by citizens and businesses of a country whether they are in that country or abroad

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4
Q

Name 6 economic variables/indicators

A
  1. Inflation
  2. Interest Rates
  3. Unemployment
  4. Exchange Rates
  5. Taxation
  6. Economic Growth
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5
Q

Inflation

A

The annual percentage increase in the level of prices in the economy. It is measured by the consumer price index (CPI)

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6
Q

4 Effects of high inflation

A
  1. INCREASED WAGES- cost of living has gone up so there is a demand for increased wages. It wages increase it will lower business profits but if they don’t increase wages it will create poor industrial relations.
  2. LOWER STANDARD OF LIVING- inflation causes higher prices which some people cannot afford. This will decrease demand and decrease sales.
  3. BUSINESSES ARE AFFECTED- their stock and equipment that they need will be more expensive hence lowering profits.
  4. EXPORTS ARE LESS COMPETITIVE- your product is more expensive and international consumers may not choose to buy your product.
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7
Q

Interest Rates

A

the cost of borrowing money expressed as a percentage of the amount borrowed. Interest Rates are determined by the European Central Bank (ECB).

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8
Q

2 effects of high interest rates

A
  1. DEBT IS MORE COSTLY- if a business cannot repay loans then they will not be able to take out the loan and will be unable to expand.
  2. LESSER CONCUMER SPENDING- people have less income so they will demand less and spend less.
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9
Q

Exchange Rates

A

The price of one currency expressed in terms of another

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10
Q

What happens when the euro increases

A

The price of Irish products in non eurozone countries will increase. This will result in people in these countries buying less Irish products.

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11
Q

What happens when euro decreases

A

The price of goods from non-eurozone countries decreases. This is better for businesses in Ireland that buy these products as they will now get them for less. Therefor their costs are down and profits are up.

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12
Q

Unemployment

A

the number of people who are available to work but are currently jobless. The unemployment rare is the percentage of people that are out of work but are actively seeking employment.

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13
Q

2 effects of an increase in unemployment

A
  1. Those who are unemployed and on social welfare generally have less disposable income. Therefor there is less demand and a decrease in sales and profits, which negatively effects the economy.
  2. An increase in social welfare will increase tax on those who are working. Businesses are paying more tax and therefor have less net pay so expansions will slow down and without expansions there will be no more new employment.
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14
Q

Taxation

A

Compulsory payment to the government in return for benefits of living or doing business in Ireland.

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15
Q

3 effects of increased tax rate

A
  1. Higher self assessment income tax and higher corporation tax leads to businesses having less profits. They will either be less likely to expand or set up in this country.
  2. Higher employee taxes such as PAYE, PRSI and USC means that the employee has less disposable income to spend in shops. This leads to lower demand and less sales.
  3. Higher VAT makes the price of goods more expensive. This could lead to people buying less product.
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16
Q

3 Positive Impacts of Business on the Economy

A
  1. CREATES EMPLOYMENT- leads to lower unemployment which takes pressure off social welfare. Also creates indirect jobs as new businesses need suppliers and service providers.
  2. INCREASED TAXES- businesses pay tax on their profits. Government will also receive tax from employees and consumers buying products from the business.
  3. COMPETITION- between businesses leads them to keeping prices relatively low to be able to compete with the market. Low prices leads to low inflation.
17
Q

3 Negative Impacts if Business on the Economy

A
  1. HIGHER INFLATION- to increase their profits, businesses will have to increase their prices.
  2. TO KEEP COSTS LOW- businesses may use cheaper less environmentally friendly packaging. They won’t dispose their waste properly and waste will be seen around the city which will decrease tourism.
  3. COMPETITION- have a negative impact on businesses that cannot compete and have to close down. This will increase unemployment.
18
Q

5 Reasons why the government get involved in Businesses

A
  1. To improve infrastructure
  2. to provide essential services
  3. ensure fair distribution of wealth
  4. spread economic development
  5. to legislate and regulate
19
Q

5 Roles that the Government does to create a suitable climate for businesses

A
  1. Government expenditure
  2. Government Agencies
  3. Government Grants
  4. Government Regulation
  5. Government Taxation
20
Q

3 Ways Government Expenditure helps

A
  1. they buy equipment e.g. school desks
  2. they spend money to improve infrastructure which allows goods to be transported around the country quicker.
  3. They spend money paying wages to employees in the public sector which gives people more money to buy goods and services.
21
Q

Explain 2 Government agencies that help businesses

A
  1. INDUSTRIAL DEVELOPMENT AGENCY (IDA)- they attract foreign direct investment (FDI) into Ireland. They do so by providing funding and grants if they come set up in certain areas of the country. They also provide information needed for businesses. They also introduce new businesses to contacts in Ireland that they may need to provide services.
  2. ENTERPRISE IRELAND- Their aim is to help Irish companies achieve global success. They do so by providing funding to help to grow an export market. They also provide information to indigenous firms.
22
Q

Explain Government Grants

A

Money that the government give to business people to help them with certain aspects of the business. It does not need to be repaid. It makes it cheaper to set up a business. Grants attract TNCs. Transnationals buy from Irish businesses to help create sales and profits.

23
Q

Explain Government Regulation

A

The laws that the Irish government pass to control business activities. They do so to protect consumers and businesses. e.g. employment laws, consumer laws, data protection laws, company laws, competition law, environmental law.

24
Q

Describe how a change in 4 taxes could impact a business.

A

PAYE- a reduction in PAYE rates should increase spending power and create a demand for goods and services as take home pay is increased.
CORPORATION TAX- a reduction in this tax could improve a company’s profits and will help find business expansion.
PAYE- an increase would see the government getting more money. They could use this is to help businesses by providing grants of decreasing PRSI.
VAT- a reduction in the rate will lead to consumers buying more goods and services as they are cheaper.

25
Q

What is Privatisation

A

The sale of state-owned company whereby ownership is transferred from government to the private sector. e.g. AerLingus was bought by IAG

26
Q

4 Benefits of Privatisation to the Irish Economy

A
  1. GOVERNMENT REVENUE- gives government a lump some of money. This can be used to build infrastructure.
  2. EFFICIENCY- private firms are profit driven and are usually run in a more efficient and cost-effective way than state owned companies.
  3. ACCESS TO FINANCE- privatised companies have greater access to sources of finance than state companies.
  4. COMPETITION- privatisation can encourage other businesses to enter into the market and lead to greater choice and lower prices for consumers.
27
Q

4 Challenges if Privatisation to the Irish Economy

A
  1. LOSS OF STATE- loss of state assets that have strategic importance to the country.
  2. INCREASED UNEMPLOYMENT- private firms run the business more efficiently so do not require as many employees which cause redundancies. This increases social welfare payments.
  3. SOCIAL ISOLATION- essential services that are not profit making may be discontinued when state enterprise is privatised.
  4. INCREASED PRICES- private businesses aim to make a profit and to do this they will increase prices.
28
Q

Describe Nationalisation

A

When a private sector industry is taken over by the government e.g. AIB

29
Q

2 Benefits of Nationalisation

A
  1. PROTECTS ESSENTIAL SERVICES- provide services that might not be profitable for a private enterprise to provide.
  2. PROFIT- the government can turn a poorly performing firm into a profitable firm.
30
Q

2 Drawbacks of Nationalisation

A
  1. COST- cost of buying the private sector business is an additional cost for tax payers.
  2. SHAREHOLDERS- in certain circumstances shareholders lose the money they have invested in the firm once it has been nationalised.
31
Q

5 Impacts of the Government on the Labour Force

A
  1. TAXATION- increasing tax rates may discourage people from working as more of their pay will be deducted as taxes. Reducing taxes has the opposite effect and increases the supply of labour for the employers.
  2. EMPLOYMENT- the government employs people directly in the public sector, civil sector and semi-state companies. This reduces social welfare payments and provides revenue for the government.
  3. GOVERNMENT EXPENDITURE- the government buy goods and services from Irish firms as part of its current and capital expenditure.
  4. EDUCATION AND TRAINING- government invest in third level institutions which ensures a supply of highly skilled labour. Training agencies such as solas help the unemployed to up skill and enter the workforce.
  5. REGUALTION- many laws protect employees e.g. the unfair dismissals act 2015. These regulations give employees more protection and security in the workplace.

Business (4 decks)

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