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business component three > economic > Flashcards

economic Flashcards

1
Q

what is gross domestic product (GDP)?

A

total value of a country’s output in a year

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2
Q

what does real GDP take into account?

A

inflation i.e., if GDP growth is 5% and inflation 2%, real GDP growth will be 3%

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3
Q

what is the business/trade cycle?

A 
the regular pattern of variation in demand and output within an economy. 
four main phases:
slump
recession
recovery
boom
(can include growth trend)
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4
Q

what is a ‘boom’?

A
  • very strong economic growth
  • firms are investing heavily
  • unemployment levels low
  • risk of overheating economy
  • inflationary pressures build
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5
Q

how does an economic boom impact businesses?

A

shortage of skilled staff
higher labour costs
firms operate near full capacity

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6
Q

what is a recession?

A

two successive quarters of negative economic growth

  • Bank of England likely to raise interest rates
  • borrowing more limited
  • firms will seek to cut costs
  • i.e., 2008 recession
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7
Q

how does a recession impact businesses?

A

price-sensitive consumers
job security fears
business failures

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8
Q

what is a ‘slump’?

A 
period of prolonged economic decline
-high levels of unemployment 
-negative GDP 
-low business and consumer confidence 
(effects more profound than recession)
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9
Q

how do businesses react to a recession?

A

find new markets
reduce selling prices
cut costs

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10
Q

what is recovery?

A

first signs of economic growth

  • growth is uncertain at this stage
  • ‘green shoots of recovery’
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11
Q

how does a recovery impact business?

A

rising levels of employment
increase in capacity utilisation
gradual increase in investment

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12
Q

what is economic growth?

A

increase in the level of economic activity or real GDP.

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13
Q

what is economic growth for the UK?

A

an important macro-economic objective of government, helping increase living standards, improve tax revenue and help create new jobs
-UK’s average rate of real GDP growth has exceeded 2.2% per annum but slowed down in growth since 2008.

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14
Q

how does economic growth impact an organisation?

A
  • costs
  • sales
  • profit
  • growth strategies
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15
Q

how to improve economic growth?

A 
staff training
lower taxes = encouraged consumer spending
increased government spending 
improved capital investment
spending on R+D
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16
Q

what are interest rates?

A

financial reward for lending of money or financial cost of borrowing money
(measures opportunity costs)
-reflects price of money
-increase causes demand for money to rise

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17
Q

what happens to a personal disposable income if interest rates rise?

A

it will decline, therefore they will spend less on goods and services

  • increased tendency for saving
  • consumer durable market impacted
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18
Q

what happens with falling interest rates?

A 
rising incomes
increased spending
higher investment
lower unemployment
depreciation of £ value
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19
Q

what happens with rising interest rates?

A 
falling incomes
decreased spending
lower investment
higher unemployment
appreciation of the £'s value
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20
Q

how do interest rates affect an organisation?

A 
costs
sales
profit
growth stratgies
objectives
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21
Q

what happens with increasing interest rates?

A

people are less likely to borrow
value of £ may increase
people spend more on paying mortgages

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22
Q

what happens with decreasing interest rates?

A

people spend less on mortgages
-people more likely to borrow
value of £ may fall

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23
Q

what are exchange rates?

A

price of one country’s currency in terms of another

  • appreciation = £ rising
  • depreciation = £ falling
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24
Q

what do exchange rates impact?

A

price of imports and exports

25
what does SPICED stand for?
strong pound: imports cheaper, exports dearer | may see less demand
26
what does WPIDEC stand for?
weak pound: imports dearer, exports cheaper | greater demand from abroad for UK goods
27
what impacts the competitiveness of businesses (exchange rates)?
fluctuations in exchange rates
28
how will a fall in the value of the £ impact importers?
more expensive to buy - can reduce margins to avoid passing the increased cost of customer - pass increased costs onto consumer w/ higher price
29
how will a fall in the value of the £ impact exporters?
cheaper exports, attracting export markets - increasing price to maximise profits - keep price to win new customers
30
how will a rise in the value of the £ affect importers?
imports less expensive - increase margins by not passing reduced cost on to consumer - reduced costs to increase sales
31
how will a rise in the value of the £ affect exporters?
more expensive to purchase in other countries | -harder to keep export deals
32
what are inflation rates?
the general tendency for prices to rise - increase in cost of living - add's to firm costs
33
what is the current target of inflation?
2%
34
what is the consumer price index?
tool of measurement looking at prices spent on hundreds of items i.e., food and cinema tickets
35
what is retail price index?
similar to CPI, but includes housing costs
36
what is the main measurement of inflation?
consumer price index
37
what are the two main types of inflation?
cost-push inflation | demand-pull inflation
38
what is demand-pull inflation?
occurs when there is too high a level of demand within the economy. -raise prices to ration until max capacity
39
what is cost-push inflation?
when costs involved in production of goods and services rise, additional cost is passed onto consumers through higher prices
40
what is the MPC?
monetary policy committee
41
what do the MPC do?
use interest rates to suppress or stimulate economic growth | -look ahead 18 months
42
how do the government respond to inflation?
``` cap public sector pay rises raise tax to cut demand cut govenrment spending encourage greater competition in markets limit supply of pounds to raise value ```
43
what is deflation?
general tendencies for price levels of goods and services to fall over a period of time - consumers may save their money - firms see fall in demand - decline in economic growth
44
How does inflation impact businesses?
increased costs due to higher inflation - can be passed onto consumer if price is inelastic - will have to try and absorb increased costs through lower profit margins
45
what are unemployment rates?
number of jobless people who are available and actively seeking work
46
who does unemployment negatively affect?
government local communities businesses wider society
47
what is the criteria for the international labour force survey?
anyone without a job, want a job, have actively sought a job in the last four weeks and are able to start work out of work, have found a job and are waiting to start in the next two weeks
48
what is a benefit of the ILO Labour Force Survey?
provides a mean of comparing UK unemployment rates with other nations
49
what is a disadvantage of the ILO Labour Force Survey?
subject to sampling errors not truly representative hard to decide whether somebody is sick or actively seeking work
50
what is a claimant court?
calculates unemployment by measuring the number of people receiving benefits - modified numerous times - suppresses number of eligible people
51
what are the four types of unemployment?
structural frictional seasonal cyclical
52
what is frictional unemployment?
when people are in between jobs - quick to start new roles - government seek to reduce levels by providing more info. to employees about relevant vacancies
53
what is structural employment?
the collapse of an entire industry bringing the loss of thousands of jobs - politically and economically sensitive i. e., staff training, grants to regenerate areas, grants to businesses to relocate
54
what is cyclical unemployment?
linked to different phases of the business cycle | -recession/slump brings about unemployment
55
what is seasonal unemployment?
mainly applies to workers in the tourist and agricultural industries demand for labour high during peak season
56
how does unemployment impact the government?
- large number of claimants for benefits - government use tax revenues to pay benefits - less money available for other uses - social problems in areas with recurring unemployment - tax revenue spent trying to attract businesses to areas of high unemployment
57
how does unemployment affect socially deprived areas?
leads to problems with drugs, alcohol abuse, petty crime, burglary and benefit fraud -schooling less effective, pupils have escape from poverty trap.
58
how does unemployment impact an organisation?
less disposable income = less demand leading to cut costs or new markets -costs such as redundancy payments
59
how does the economic environment impact an organisation?
``` cost of production price elasticity of demand sales/profits market share competitiveness ```

business component three (7 decks)

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