Economic factors Flashcards
What is GDP and what does it measure?
Gross Domestic Product
Measures the value of all goods and services produced in an entire economy over a period of time.
What is a recession?
Negative growth in the economy in 2 consecutive quaters
What are the 2 types of taxes?
Indirect and direct
What are strategic decisions often centered on?
Investment
When are businesses most likely to invest in their business?
- GDP growth will be positive - higher future demand
- Business taxes are low - costs are lower and keep more profits
What are exchange rates?
The price of one currency against another
Who are high exchange rates good for?
Importers of goods
Who are high exchange rates bad for?
Exporters of goods
Who are low exchange rates bad for?
Importers of goods
Who are low exchange rates good for?
Exporters
Why may exchange rates have no impact on strategy?
Exchange rate fluctauations are short term and strategies are long term
What is inflation?
A sustained rise in the average level of prices over a period of time.
How is inflation measured in the UK and how does it work?
CPI - Consumer Price Index.
This takes a typical basket of goods to measure their total price on each calander month.
The prices are then compared with the same calander month last year to give an annual inflation rate.
What % of inflation does the government aim for?
2%
Why is high inflation considered to be one of the worst things that can happen to an economy?
- Undermines the value of money
- Making businesses and consumers uncertain about the future
- Confidence falls
- Confidence is the key to economic growth
Why is controlled inflation considered to be good for an economy?
- Inflation means rising prices
- Rising prices stems from higher demand
- Higher demand reflects economic growth
Why is deflation considered to be really bad for an economy?
It tends to imply stagnation/recession
What sector of the economy benefits from inflation and why?
Borrowers because you end up playing relativley less than you borrowed
What are the 2 ways used to manage an economy?
- Fiscal policy
- Monetary policy
What is fiscal policy?
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy.
What does the government do if they want to boost the economy?
Expand fiscal policy by spending more
May raise taxes or borrow more money
What does the government do if they want to slow down the economy?
Cut spending - called austerity
What is monetary policy?
The Bank of England controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
What does the Bank of England do if they want to slow down the economy?
Raise interest rates
What does the Bank of England do if they’re worried of a recession?
Lower interest rates
What may be the unexpected side effects of high inflation rates?
- Negativley affect currency exchange rates
- Export slump
- Rising prices in the UK make goods and services uncompetitive on a global scale
- High inflation in the UK may persuade some businesses to move location to other countries where production is cheaper and efficient.
What is protectionism?
Any attempt to impose restrictions on trade in goods and services.
What are the 7 protectionsim methods?
- Tarriffs
- Quotas
- Intellectual property laws
- Technical barriers to trade
- Export subsidies
- Domestic subsidies
- Import licensing
What are tariffs?
A tax or duty that raises the price of imported goods and causes level of imports in a country to fall
What are quotas?
Quantitiatve (volume) limits on the level of imports allowed or a limit on the value of imports permitted into a country in a given time period
What are intellectual property laws?
E.G. Patents and copyright protection
What are the technical barriers to trade?
E.G. Product labelling rules and sanitary standards. These increase product compliance costs and impose monitoring costs on export agencies
What are export subsidies?
A payement to encourage domestic production by lowering their costs
What are domestic subsidies?
Government help for domestic businesses facing financial problems
What is import licensing?
Government grants importers the license to import goods
What is open trade?
Opposite of protectionism.
Countries agree to not impose tariffs, quotas or other restrictions on eachother
What are trading blocs?
Groups of countries (normally neighborouing countries) have arranged themselves in trading blocs where all have agreed to have free trade
What are the 2 approaches to BREXIT?
- Soft BREXIT
- Hard BREXIT
What is soft BREXIT?
Staying in the single market but leaving the EU
No freedom of movement but still free trade
What is Hard BREXIT?
Leaving the EU and single market completley
What is globalisation?
The increased degree of integration between international economies
What are the 12 causes of globalisation?
- Improved transport
- Containerisation
- Technology
- Global brands
- Trading blocs
- World Trade Organisation
- Economies of Scale
- Growth of global media
- Global trade cycle
- Financial system
- Improved mobility of capital
- Increased mobility of labour
How has improved transport led to globalisation?
- Makes global travel easier
- Greater movement of people and goods across the globe
- Rapid growth in air travel
How has containerisation led to globalisation?
- Reduced the costs of inter-modal transport
- Making trade cheaper and more efficient
- Less labour costs
How has technology led to globalisation?
- Easier to communicate
- Easier to share information
- People from any country caqn bid for the right to provide a service
- It makes it possible to find people to do a job relativley cheaply because costs are lower in the Indian sub-continent e.g. call centres
How has global brands led to globalisation?
Creates presence in many different economies
How has trading blocs led to globalisation?
Reduced national barriers
How has the world trade organisation led to globalisation?
- Reduced tariffs encourgaing global trade
- Trying to increase the wealth of all economies
How has economies of scale led to globalisation?
Firms exploiting gains from economies of scale to gain increased specialisation and increased dominance of their market
How has the global trade cycle led to globalisation?
- Economic growth is global in nature
- Countries are increasingly integrated
- E.g. recession in one country affects global economy
How has the increased mobility of capital led to globalisation?
- General reduction in capital barriers, making it easier for capital to grow between different economies
- Increased ability for firms to recieve finance
- Increased the global interconnectedness of global financial markets
How has increased mobility of labour led to globalisation?
- People are more willing to move between different countries in search for work
- Plays a large role in transfers from developed countries to developing countries
Why are emerging economies vital for business?
- They offer a vast new market into which businesses can sell their products
- They offer vast resources in which the businesses can try to exploit
- Natural resources, capital (e.g. cheap buildings for factories) and cheap labour
What are the features of emerging markets?
- Economies making a transition
- Rapid industrialisation
- Have potential to become developed economies
- Faster long term economic growth than most developed economies
- Many inhibitants still in poverty
- Businesses struggle to access global markets
What are the treats of emerging markets?
- Increasingly large pool of skilled, but low cost labour
- Under valued currencies make their exports cheaper
- Inadequate protection of brand and other intellectual property
- State subsidy of industries to make them more competitive globally
