Economic Impact on Businesses (Chapter 3)

Question 1

What are the 4 main economic factors that impact business function?

Answer 1

• inflation
• interest rates
• availability of skilled and unskilled labour
• unemployment rates

Question 2

What is Unemployment?

Answer 2

A person without work that is available to begin work and is actively seeking employment.

Question 3

What are some examples of how Unemployment can result?

Answer 3

• people leaving their jobs and going in search of others (frictional)
• fruit picking, ski instructor (seasonal)
• a fall in consumer spending (cyclical)
• people’s skills no longer being needed (structural)

Question 4

What is the definition of someone that is Employed?

Answer 4

An individual over the age of 15 that works at least one hour per week.

Question 5

What is the definition of someone that is Unemployed?

Answer 5

An individual over the age of 15 who are not working but are taking active steps to find a job.

Question 6

What is the definition of the Labour Force?

Answer 6

All individuals over the age of 15 who are willing and able to work.

Question 7

What is the definition of the Unemployment Rate?

Answer 7

The percentage of the labour force that is unemployed.

Question 8

What is the definition of the Participation Rate?

Answer 8

The percentage working of the working age population in the labour force.

Question 9

What is the definition of Inflation?

Answer 9

Inflation is the average rate that prices are rising.

Question 10

What are the two types of inflation?

Answer 10

Demand Pull and Cost Push.

Question 11

What is Demand Pull inflation?

Answer 11

Inflation caused by demand exceeding supply thereby driving prices up for the economy as a whole.

Question 12

What is Cost Push inflation?

Answer 12

Inflation caused by a sustained increase in the price of goods and services that results from producers passing on increased production costs to consumers.

Question 13

What are 4 common effects of Inflation?

Answer 13

• causes local producers to lose out to overseas
• undermines economic growth
• changes the allocation of resources
• affects income distribution

Question 14

What are skilled workers?

Answer 14

A skilled worker is any worker who has special skill, training, knowledge which they can apply to their work.

Question 15

What are unskilled workers?

Answer 15

Unskilled labour is a workplace with limited skills or minimal economic value for the work performed.

Question 16

What is the definition of Interest Rates?

Answer 16

The extra rates that businesses and individuals pay on their loans, mortgages and credit cards.

Question 17

What do higher interest rates lead to?

Answer 17

People are discouraged from getting loans and credit cards, which slows down overall spending, eventually slows demand and reduces inflationary pressure.

Question 18

What do lower interest rates lead to?

Answer 18

Results in increased spending as people are spending less on debt repayments and have more spare money. Businesses and people can also increase their debt to finance spending because the debt is easier to pay off.