Economic issues

Question 1

Balance of payments

Answer 1

The difference between the values of export and import goods and services of a country over a year

Question 2

Government economic objectives

Answer 2

• Healthy balance of payments
• Low unemployment
• Low inflation
• Economic growth

Question 3

inflation

Answer 3

the price increase of goods and services over time

Question 4

level of unemployment

Answer 4

the percentage of the population that are capable of working but are unable to find a job

Question 5

Gross Domestic Product (GDP):

Answer 5

The value of all goods and services produced by a country in a year

Question 6

Impact on business of low inflation

Answer 6

People can afford to pay for non essential goods

Making it easier for companies to set up new ventures and expand.

Meaning all sectors of the economy benefit

Question 7

Impact on business of high inflation

Answer 7

People may not be able to afford local goods

Instead they buy from foreign goods which are cheaper.

Meaning local businesses receive fewer sales

Question 8

Benefits of low unemployment (many people having jobs)

Answer 8

• They contribute to the total output of the country and improve economic growth
• The government does not have to spend money on unemployment benefits so can spend that money on improving the country’s infrastructure
• The higher the level of employment, the more income tax a government receives

Question 9

Benefits of GDP increasing

Answer 9

Standard of living should improve resulting in economic growth

More output, so lower unemployment

growing economy means more business opportunities

Question 10

The business cycle

Answer 10

• Growth
• Boom
• Recession
• Slump

Question 11

Growth

Answer 11

This stage is when the economy recovers or grows

Question 12

Growth characterstic

Answer 12

• GDP is rising (more output)
• existing businesses grow and make profits
• falling unemployment rates
• raised standard of living as more people are employed

Question 13

Boom

Answer 13

This stage is the peak of the business cycle

Question 14

Boom characteristics

Answer 14

• Business investments and profits are at their highest levels
• Most sectors of the economy are performing at their best
• Very low unemployment rates, resulting in increased wage costs
• High levels of demand for goods and services causing prices to rise (inflation)

Question 15

Recession characteristics

Answer 15

• Decline in economic activity
• GDP falling (less output)
• falling demand by consumers lead to falling profits
• Unemployment rises, employee redundancy increases, some businesses even close down.

Question 16

Slump characteristics

Answer 16

• Low production of goods and services, businesses may close down
• Low demand for goods and services
• High unemployment due to low business activity

Question 17

Interest rates

Answer 17

The cost to a person or business of borrowing money from a lender such as a bank

Question 18

Tax

Answer 18

A fee paid to the government on income, goods and services.

Question 19

Impact on Business from Changes in Economic Indicators

Answer 19

• Changes in employment levels affect ability of business to recruit new employees
• Rising inflation increase business costs, leading to higher prices
• increase in GDP means economy is growing. Increase sales, higher income, but shortage of workers.

Question 20

if GDP decreases

Answer 20

Lower output, so fewer employees are needed

Higher unemployment

Lower standard of living as people cannot afford to buy many goods and services

Less business investments

Question 21

Recession

Answer 21

When there is a period of falling gross domestic product (GDP)

Question 22

How changes in taxes and government spending affect business activity

Answer 22

-

Question 23

Government income

Answer 23

• Taxes
• Borrowing (e.g from financial institutions)

Question 24

Government Spending

Answer 24

• Public services e.g school and hospitals
• Subsidies on goods ands services
• Welfare benefits

Question 25

Direct Tax

Answer 25

Tax charged on personal income or tax on the profit made by a business

Question 26

Indirect Tax

Answer 26

• Tax charged on the price of goods and services, which is added to the price of goods and services before they are brought

Question 27

Disposable income

Answer 27

The amount of income left for indiviuals after taxes have been paid

Question 28

Effect on consumers on increase in income tax rates

Answer 28

• Higher income tax = reduced disposal income
• consumers spend less on goods and services

Question 29

Effect on business in increase in income tax

Answer 29

• Less demand for goods and services, leading to fewer sales
• Employees may not be motivated to work as hard, affecting production.

Question 30

Business response to increase in income tax rates

Answer 30

• Firms reduce production levels (less demand)
• business may decide to provide more fringe benefits to compensate and improve motivation.
• Business focus on cost reduction to offer competitive pricing to attract customers

Question 31

Affect of increase in corporation tax on shareholders

Answer 31

• shareholders will receive fewer dividends

Question 32

how can a country get out of recession to encourage economic growth

Answer 32

can lower the corporation tax rate

Question 33

Effect on increase in corporation tax rates on business

Answer 33

• A smaller profit after tax for business, so smaller amount is available to reinvest and grow
• Will discourage existing and new shareholders from investing.

Question 34

Effect on increase in corporation tax rates business response

Answer 34

• May rethink their growth strategy. May relocate their operations in a foreign country with a lower corporation tax rate.
• Smaller profit after tax may also lead to business increasing prices to meet costs.

Question 35

Indirect tax

Answer 35

• Value Added after Tax (VAT)
• Import Tariffs
• Sales tax
• Excise duty

Question 36

Direct Tax

Answer 36

• Income tax
• corporation tax

Question 37

Increase in VAT