Economic factors affecting businesses Flashcards
what is GDP?
- informs us about the health of economy
what does GDP measure?
- total value of all goods and services produced in the economy
how does decreasing GDP affect economic growth?
- value of goods and services produced declines
- economic growth is negative
how does increasing GDP affect economic growth?
- more goods and services are being produced
- economy grows in size
how does GDP link to recession?
- if GDP decreases for two consecutive quarters of a year, economy enters a recession
what does GDP stand for?
- gross domestic product
how might higher GDP affect business decisions?
- increase output
- consider expansion
- increase prices
how might lower GDP affect business decisions?
- decrease prices
- produce less output
- consider downsizing
what is taxation?
- payment made by an individual or a firm to the government
why does the government collect taxes?
- so that they can provide essential services that a country needs
what are some examples of direct taxes?
- income taxes
- corporation taxes
what is an example of an indirect tax?
- VAT (20%)
how might high taxation levels positively affect business decisions?
- businesses selling inferior goods may get more demand
- have a negative income elasticity of demand
- ie. Poundland
how might low taxation levels negatively affect business decisions?
- less support for small businesses and start ups
- ie. grants or loans
- if public services (like healthcare or transportation) are affected productivity and wellbeing of employees could decrease
what do exchange rates measure?
- value of each currency against other currencies
what is an example of an exchange rate?
- £1 to $1.26
which businesses does changes in exchange rates affect?
- businesses who are trading with other businesses or consumers in other countries
how does changes in exchange rates influence business decisions?
- if the currency is strong, it is cheaper to import, and more expensive to export
- could lead to more imports of raw materials
- if the currency is weak, imports are more expensive and exports are cheaper
- sell more overseas
- change target market
what rule should be followed when discussing exchange rates?
- never base strategy on exchange rates as they are long term
- exchange rates are dynamic and constantly changing
- it is possible to base tactics on exchange rates as they are short term
what is globalisation?
- when the world becomes more integrated
- much less separate
why has globalisation grown?
- barriers to trade breaking down
- transport advances
- growth of the internet and technology
what positive impact has globalisation had on businesses?
- more options to choose from staff
- possible expansion
- more opportunities for trade (open new markets)
what negative impact has globalisation had on businesses?
- more competition
what is inflation?
- when the average price of all goods and services bought and sold in an economy is increasing
what is an example of inflation?
- cost of living crisis
how would higher than expected inflation affect business decisions?
- increases prices
- leads to even further inflation
- increase in costs (ie. labour costs as there would be an increase in minimum wage)
- undermines business confidence
- delay investment decisions as there is increased risk
what is the target annual inflation?
2%
what is fiscal policy?
- government spending in economy
- taxation
how might fiscal policy positively affect business decisions?
- lower taxation to boost economy would lower costs so could lower prices
how might fiscal policy negatively affect business decisions?
- higher taxation to decrease economic growth will increase costs and lead to increased prices
what is monetary policy?
- government indirectly controls the amount of money that there is in an economy
- through Bank of England
how might monetary policy positively affect business decisions?
- lower interest making it cheaper to borrow
- more expansion
how might monetary policy negatively affect business decisions?
- higher interest making it more expensive to borrow
- reduce expansion plans
what is free trade?
- fewer restrictions placed on imports and exports
what are the benefits of free trade?
- more opportunities for trade
- increases choice
- reduces costs
what is the drawback of free trade on businesses?
- more competition
what are three examples of protectionist policies?
- tariffs
- quotas
- technical specifications (like extra rules)
what are tariffs?
- tax making imports more expensive
what are quotas?
- physical limit on the volume of imports for a particular product
what is protectionism?
- government takes measures to protect domestic goods and services produced in their country
- due to too many imports
what is one key advantage being apart of the EU brought to UK businesses?
- single market
- no tariffs/ quotas/ export restrictions
