Chapter 21: Business, the Economy And Government Flashcards
Name the five factors used to judge an economy.
- Inflation
- Interest Rates
- Unemployment
- Exchange Rates
- Taxation
What is inflation?
Annual percentage increase in the general level of prices in the economy measured by the Consumer Price Index. E.g. Family’s Shopping Price Increase
Explain the negative impact of inflation on business. (3)
-High Wage Demand: High inflation results in high wage demands by employees to maintain their standard living.
-Increased Costs: Raw materials more expensive lowering profits.
-Decreases Sales: Inflation results in higher prices and consumers unable to afford as much of goods.
Explain interest rates.
Interest is the cost of borrowing money expressed by percentage of the amount borrowed. ECB determines the rates. Increase in Interest Rates means cost of borrowing money increases.
Explain the affect of rising interest rates on business.
- Less Expansion: Many will not be able to afford higher repayments on loans. Disincentive to borrow.
- Less Demand-less disposable income as mortgage repayments increase.
- Lower Profits: Repayments increase, extra cost for business
What is the effect of high unemployment on business?
Less Demand: Small disposable incomes for employees on social welfare so decrease in spending.
Easier to recruit new staff: More people looking for fewer jobs and willing to work for lower wages reducing costs.
Increase in security costs: More crime
Increased Taxes: Government must pay more in social welfare so increases tax on business to fund.
Define exchange rates. Explain the effects of increase of euro.
The price of one currency expressed in terms of another currency.
- Reduction in exports outside Eurozone: Irish goods more expensive outside Eurozone. Less sales.
- Less Sales in Ireland: Increased price of Eurozone goods makes goods outside Eurozone cheaper. Irish consumers may buy foreign alternatives.
- Costs of Imports Decreases: Irish Business can get raw materials from outside Eurozone for cheaper price.
Effect of high taxation. (3)
- Expansion: Businesses have less retained profit unable to expand organically.
- Increased Costs: Accountants hired to work out tax, higher Employer’s PRSI discourages hiring.
- Decreased Sales: Less spending power for consumers. Consumers can buy less with the same wages.
Explain the five positive impacts of business on the economy. (5)
- Job Creation: Hire thousands of people which leads to lower unemployment. Improving standard of living.
- Consumption: Buy Irish products and services within Ireland pumping money into the economy. E.g. Farmers buy fertilisers and machinery
- Taxation: Less Social Welfare and increased Income Tax Revenue means government has more money to invest in infrastructure, grants and improving the country. E.g. Hospitals
- Lower Inflation: Competition between businesses forces them to keep price low. Good for consumer spending. E.g. Aldi
- Create Wealth: Creates wealth for owners and employees which leads to increased spending in economy. Leads to more businesses and wealth.
Explain the four negative impacts of business on the economy.
- Business can increase prices to increase their profits which leads to higher inflation. E.g. Ryanair increasing prices during the Summer.
- Business may cut costs in areas of waste disposal and recycling and damage the environment. Negative impact on tourism and food industries. E.g. Doesn’t recycle puts in landfill.
- Increased pressure on infrastructure. Slows down transportation. E.g. M50
- Competition can lead to closure of smaller businesses and increase in unemployment. E.g. Cannot compete with low-wage economies like China.
Explain how government expenditure creates a climate for business. (3)
-Money that the state spends each year
-Current Spending (day to day costs), Capital Spending (country’s infrastructure).
-Increases Business Sales: Largest buyer of products and services.
-Improves infrastructure. E.g. roads which creates jobs directly and aids businesses to transport their goods.
-Job Creation: Government largest employer which reduces unemployment. Increases standard of living. More disposable income to spend.
Explain how government agencies creates a climate for business. (4)
State-owned agencies set up to help business people.
1.Enterprise Ireland: Helps indigenous Irish businesses by providing training, grants and investment. Helps business achieve global success and export. Provides helpful advice and information needed to succeed.
2. IDA Ireland: Attract foreign direct investment by offering grants and promoting Ireland’s low corporation tax. Provides information and contacts to help them start up in Ireland.
3. Fáilte Ireland: Provides advice to tourism industry. Trains and advertises Irish tourism.
4. Local Enterprise Office-Helps local entrepreneurs establish and grow a business.
Explain how lower government taxation creates a climate for business. (3)
Higher Demand: Cheaper goods and services for consumers leads to increased sales.
More Disposable Income: Employees and Employers have more money left over to spend in the economy.
Reduced Business Costs-No accountancy fees and less tax of profits means more finance for expansion.
Explain how government grants create a climate for business. (2)
Funds Expansion and Startup: Machines, computers and training. Free source of financial aid.
Attracts Transnational: Free money to set up here. Creates jobs for Irish people and benefits economy.
Explain government regulations and how they create a climate for business. (4)
Laws that Irish government has passed in order to control the activities of businesses to protect consumers, businesses, environment, general public and employees.
Competition Act: Forbids large competitors buying and bullying small competitors.
Sale of Goods and Supply of Services Act: Ensures good quality products and services.
Consumer Protection Act: Ensure commercial practices are fair.
Unfair Dismissal Act: Protects employees from being unfairly fired.
