External Economic influences on business behavior

Question 1

Economic growth

Answer 1

An increase in a country’s productive potential measured by an increase in its real GDP

Question 2

Gross Domestic Product

Answer 2

The total value of goods and services produced in a country in one year- real GDP has been adjusted for inflation

Question 3

Government economic objectives

Answer 3

• Economic growth
• Reduction of income inequalities (some gov)
• Low and stable rate of inflation
• BOP equilibrium
• Low rate of unemployment

Question 4

Factors that lead to economic growth

Answer 4

Increases in output resulting from tech chances
Increases in economic resources
Increases in productivity

Question 5

Business investment

Answer 5

Expenditure by businesses on capital equipment, technology and research and development.

Question 6

Business cycle

Answer 6

The regular swings in economic activity, measured by real GDP, that occur in most economies, varying from boom conditions to recession when total national output declines.

Question 7

Four key stages of business cycle

Answer 7

Boom
Downturn or recession
slump
Recovery and growth

Question 8

Recession

Answer 8

A period of six month or more of declining real GDP

Question 9

Inflation

Answer 9

An increase in the average price level of goods and services

Question 10

Deflation

Answer 10

A fall in the average price level of goods and services

Question 11

Causes of inflation

Answer 11

Cost-push inflation

Demand-pull inflation

Question 12

Cost-push infaltion

Answer 12

Inflation caused by increases in the cost of production. Businesses are forced to increase the selling price to avoid making a loss

Question 13

Demand-pull inflation

Answer 13

Too much demand for supply available of products. Businesses may be able to increase prices without demand falling- But this depend on the elasticity of demand

Question 14

Working population

Answer 14

All those in the population of working age who are willing and able to work

Question 15

Unemployment

Answer 15

The exists when members of the working population are willing and able to work, are unable to find a job.

Question 16

Business strategy during a period of rapid inflation might focus on:

Answer 16

■ cutting back on investment spending
■ cutting profit margins to limit their own price rises to stay
as competitive as possible
■ reducing borrowing to levels at which the interest payments
are manageable
■ reducing time period for customers (trade receivables)
to pay
■ reducing labour costs.

Question 17

Cyclical unemployment

Answer 17

Unemployment resulting from low demand for goods and services in the economy during a period of slow economic growth or a recession.

Question 18

Structural unemployment:

Answer 18

unemployment caused by the decline in important industries, leading to significant job losses in one sector of industry.

Question 19

Frictional unemployment:

Answer 19

unemployment resulting from workers losing or leaving jobs and taking a substantial period of time to find alternative employment.

Question 20

Balance of payments

Answer 20

this account records the value of trade in goods and services between one country and the rest of the world. A deficit means that the value of goods and services imported exceeds the value of goods and services exported.

Question 21

Exchange rate

Answer 21

the price of one currency in terms of another

Question 22

Exchange Rate depreciation:

Answer 22

a fall in the external value of a currency as measured by its exchange rate against other currencies.

Question 23

Imports

Answer 23

Goods and services purchases from other countries

Question 24

Exports

Answer 24

Goods and services sold to consumers and business in other countries

Question 25

Exchange Rate Appreciation:

Answer 25

a rise the external value of a currency as measured by its exchange rate against other currencies

Question 26

Fiscal Policy

Answer 26

concerned with decisions about government expenditure, tax rates and government borrowing – these operate largely through the government’s annual budget decisions

Question 27

Government Budget Deficit

Answer 27

the value of government spending exceeds revenue from taxation.

Question 28

Government Budget Surplus:

Answer 28

taxation revenue exceeds the value of government spending.

Question 29

Monetary policy:

Answer 29

is concerned with decisions about the rate of interest and the supply of money in the economy.

Question 30

Fiscal policy can be used to

Answer 30

• raise rev
• vary gov spending
• Boost spending on goods and services (expan. fiscal pol)
• Reduce demand for goods
• cut gov deficit

Question 31

Market Failure

Answer 31

when markets fail to achieve the most efficient allocation of resources and there is under- or overproduction of certain goods or services.

Question 32

External costs

Answer 32

Costs of an economic activity that are not paid for by the producer of consume, but by the rest of society

Question 33

Income Elasticity Of Demand:

Answer 33

measures the responsiveness of demand for a product after a change in consumer incomes.