Chapter 2 - The global business environment (parts 1-4)

Question 1

What does LoNGPEST stand for?
Also be aware of:
STEEP
PESTELI
STEEPLE
DEEPLIST

Answer 1

Local
National
Geographical
Political
Economic
Social
Technological

Question 2

What is GDP?

Answer 2

Total value of a nation’s income produced by economic activity from within it’s borders:
Measures the value of output produced within the domestic boundaries of the UK
Includes output of foreign owned firms located in UK
Excludes output produced by UK firms located overseas
AKA: Gross Value Added

Question 3

What is GNP?

Answer 3

Net income earned overseas:
Measures output from assets belonging to the country’s population
Therefore, includes earnings from investments abroad

Question 4

What does Monetary policy involve? (3 things)

Answer 4

Money supply
Availability of credit
Interest rate levels

Question 5

What does Fiscal policy involve? (3 things)

Answer 5

Taxation rates
Levels of government spending
Levels of government borrowing

Question 6

3 policies that could reflate the economy

Answer 6

Lowering interest rates
Quantitative easing
Increasing money supply (lower bank’s reserve requirements/relax direct controls over bank’s ability to lend)

Question 7

2 policies that could deflate the economy

Answer 7

Increasing interest rates

Reducing money supply

Question 8

Supply side policies: What do they do? (3 things) and what can they effect? (3 things)

Answer 8

Supply side policy aims to:
Enhance LT growth by improving efficiency and aggregate supply within the economy

Supply side policy is aimed at: VERY CONSERVATIVE
Increasing competition (dereg., privatisation)
Increasing efficiency of labour (training incentives/lower union power/lower tax/relaxed employment legistation on min wage)
Encourage firms to invest

Question 9

What is the balance of payments?

Answer 9

Records financial transactions between a country and the international economy.
Accounts split in 2 sections:
Current account - measures trade in goods and services
Financial + capital account - tracks capital flows in and out

Question 10

3 causes of balance of payments deficit

Answer 10

UK goods not offering value for money
Booming UK economy creates extra demand for imports as UK consumers buy more foreign goods as well as UK goods
When £ is strong, UK customers find overseas purchases more attractive and vice versa