ch 21 Business, the Economy, the Gvt Flashcards
free market economy
factors of production owned by private sector
goods produced allocated by supply and demand
inefficient businesses will close
citizens may be deprived of products due to poverty
wealth gap is created
eg USA
centrally planned economy
totally regulated by the gvt
factors of production owned by the gvt
inefficient and lack innovation
restrictions on personal freedom and an equal distribution of wealth
eg Cuba
mixed economy
combines free market and centrally planned
public and private sector so innovation exists
taxes may be high
eg Ireland
economic growth
the increase in the value of goods and services produced in an economy from one year to the next
it’s measured by GDP
eg Celtic Tiger
Recession
occurs when there’s 2 or more consecutive quarters of negative economic growth in an economy
how an economy can be measured
inflation interest rates employment exchange rates taxation
economic variable
inflation
sustained increase in the general level of prices over a period of time
measured by CPI
deflation
decrease in the general level of prices in two consecutive quarters
2 types of inflation
Demand-pull inflation
Cost-push inflation
demand-pull inflation
increased demand causes prices to increase
full employment can cause it
cost-push inflation
increase cost of production causes prices to increase
minimum wage increasing
VAT increases
potential impact of high inflation rates on the Irish economy
purchasing power
of money falls over time-saving is discouraged
more wage demands
from workers are likely- there may be strikes and poor morale
lower standard of living
less purchasing power as the cost of living rises
exports become less competitive
Irish selling prices rise in relation to goods from other countries
increased gvt expenditure on wages
eg teachers as the cost of living rises
economic variable
interest rates
the cost of borrowing money over a period expressed as a % of the amount borrowed
ECB sets Eurozone rates
banks charge a higher rate
impact of high interest rates
debt capital more costly
higher repayments for individuals and gvt when borrowing or repaying debt at a variable rate;if a business has borrowed, the higher repayments make it harder to expand
harder to attract investors
return for savings in deposit accounts are higher, so savings offer a more attractive, risk-free return for investors
less consumer spending
more expensive to access loans, mortgage repayments are higher, so consumers spend less
impact of low interest rates
good for borrowers
stimulate growth in the economy
businesses can borrow cheaper
investment in new projects more likely
business development will increase
gvt will borrow and invest in capital expenditure
can lead to INFLATIONARY PRESSURE in an economy
unemployment
the percentage of the work force which is unable to find work
It’s desirable to have low unemployment
measured by the live register
labour force
everyone working or looking for work between the ages of 16 and 65
full employment
when almost everyone in the country is able to find it
4%
employers market
large unemployment
labour supply>labour demand
people willing to work for less money
low unemployment benefits
gvt: tax revenue increases and social welfare decreases
less emigration and ‘brain drain’ of highly skilled workers
increased spending: incomes higher
low unemployment dis
labour shortages in some areas can cause high wage inflation
pressure on rent/ property prices in areas of high employment
how the gvt can affect the labour force
summarised
lower taxation
gvt expenditure
gvt regulation
gvt employer
how the gvt can affect the labour force
lower taxation
low corporation tax 12.5%
encourages FDI
lower paye
employees more disposable income. Encourages demand for goods
lower DIRT
encourages savings
how the gvt can affect the labour force
gvt expenditure
investment in 3rd level education
supply of highly skilled labour
helps attract FDI(high tech like microsoft)
spending infrastructural projects
increase employment during construction
encourages more businesses as a result of improved infrastructure
how the gvt can affect the labour force
gvt regulation
laws the gvt passes
controls activities of the business and protects employees
national minimum wage €10.20
workers may not be employed due to rising costs
labour supply should increase as more are willing to work for a higher wage
how the gvt can affect the labour force
gvt employer
biggest employer in Ireland
civil service-gvt depts
public service- teachers
state owned enterprises
