Chapter 27 Flashcards
What is GDP?
Total value of all of the output of goods and services in a country in a year
What is GNP?
The total value of the output of goods and services by the residents of a country, despite their location of production.
What are the 4 economic stages:
Growth, boom, recession, slump.
What is growth?
GDP is rising, unemployment is falling, leading to improved living standards. Interest rates and inflation is low. More profits for business (more dividends and wages)
What is boom?
This is caused by too much spending. Inflation is high, and thus business costs increase
What is recession?
This is caused by too little spending. GDP falls and there is a decline in demand leading to less sales and profits that mere unemployment and redundancy.
What is slump?
Serious recession. Unemployment is very high and businesses are unlikely to survive.
What is the impact on businesses in changes in employment?
If there is high employments it is difficult for the business to recruit. If unemployment is high, businesses have a greater variety of workers to choose from to employ. If there is high unemployment, there is less income for consumers which may lead to reduced sales for one company, and increased sales for a cheaper company.
What is the impact on businesses in rising inflation?
Due to increasing raw material tests, businesses have to increase their selling price to maintain profits which discourages the consumers purchase products.it also effects businesses due to the types of graceless (necessities and wants)
What does increasing GDP impact businesses on?
More employment, economic growth, more output
What are the economic objectives the of government?
Low inflation, low unemployment, economic growth, balance of payments.
What does inflation mean?
An increase in the average price of goods and services
What is unemployment?
When an individual who is able and willing to work cannot find a job.
What is economic growth?
When a countries GDP increases with more goods being produced and thus sold
What is balance of payments?
Difference between exports and imports of a country.
Why de governments want low inflation? What does inflation impact?
Inflation leads to workers real wages falling due to real income (earning of individual after adjusting to the extent of inflation) decreasing that employees may demand higher wages which increases business costs, and price of goods may be higher in countries with inflation, so the same product may bought abroad which decreases national sales.
Why do governments want low unemployment?
-Unemployment can lead to less income of individuals, thus they cant afford business goods leading to decrease in sales.
- unemployment can lead to less worker employed thus less output and a fall in GDP.
Why de governments want economic growth?
- economic growth leads to an increase in GDP
- if there is lessGDP, less output meaning high unemployment leading to reduced living standards, and businesses can’t expand as people can’t afford
What are exports?
Goods or services sold from one country to another.
What are imports?
Goods and services bought by one country from another.
Why is a high level of import bad?
This can lead to a negative balance of trade
- a country may runout of foreign currencies leading to borrowing from abroad which increases dependency, and exchange rates may depreciate, making there goods cheaper and international goods mere expensive.
What is exchange rate appreciation and depreciation?
Exchange rate appreci at on is when the currency of a country increases in value as compared to other currencies.
What are the government economic policies?
Fiscal policy, monetary policy, supply side policies
What is fiscal policy?
Changes in laws by the government based on tax later and public sector spending.
The government invests in services to improve them as well as businesses in which the money obtained is from taxes.
What are the 2 main types of taxes? Explain.
Direct: paid directly from incomes like profit tax or income tax.
In direct: when there is an added tax on the price of goods,
What is disposable income?
Amount of income remaining after paying income tax
What are the advantages of income tax?
For those with less income, tax is less
What are the disadvantages of income tax?
These with higher income pay more, and disposable
Income is reduced which can lead to less sales, and thus unemployment as business costs need to be saved, and for the employees POV, a demand in higher wages which increases business costs.
There will be less money for the business to reinvest and expand.
HOW TO COMBAT: lower costs of production to sell at a lower price
What is profits tax and its disadvantages:
Profits tax is deducted from the profits earned by a business. This can lead to less money being able to be reinvested back into the business, and there may not be enough profit to provide satisfactory dividends to the shareholders.
What is VAT and its disadvantages?
This is added to the price of products bought, making them more expensive.
This discourages consumers from buying goods from a certain company (however cheaper ones may strive if they have lower prices or there may be a price inelastic demand meaning products are still bought despite increase in price). Employees may feel that their wages buys them less so they may demand an increase in wages which increases business costs
What is an import tariff?
Import tariff is a tax on an imported product
What is an import quota?
Import quota is a restriction on the amount of goods that can be imported
How can businesses be affected my import tariffs?
Due to increased raw material costs, cost of production will be higher leading to a higher selling price which can reduce sales
What is an interest rate?
The amount that is charged for borrowing money from a bank
What is monetary policy?
Monetary policy refers to the percent of interest rate. It is the change in interest rates by the government or central banks.
How does high interest rate affect a business?
Businesses who have pending loans to pay will now need to pay more than they needed to due to increased interest rates, which means their profits decrease. Managers who want a loan to expand the business may delay this idea. Consumer loans will also increase leading to their disposable income reducing leading to lower standard of living and less demand of products that can lead to business failure.
HOW TO COMBAT:
Reduce investments a business needs and find other sources of finance for expansion, without interest, or lower the price of goods so customers can afford.
What are supply side policies?
This tries to increase competitiveness of industries in an economy against those of other countries
What are some supply side policies?
Privatization, improve training, machinery, reducing government controls over industries.
