External Influences(Sec 6)

Question 1

What are the economic objectives of governments?

Answer 1

• Low inflation
• Low unemployment
• Economic growth
• Balance of payment b/w imports & exports

Question 2

What is inflation?

Answer 2

Inflation is the rise in the average price of goods and services over time

Question 3

What is meant by economic growth?

Answer 3

It is when a country’s GDP increases-more goods and services were produced than the previous year

Question 4

What is real income?

Answer 4

Real income is the value of income. It falls when prices rise faster than money income

Question 5

What problems does inflation cause?

Answer 5

• Real income will fall, wages buy less goods than before
• Prices of goods produced will be higher than that of other countries, so exports fall
• Businesses will be reluctant ti expand into the country

Question 6

What problems does unemployment cause?

Answer 6

• Unemployed people don’t contribute to the growth of the country, output decreases
• The Gov has to pay benefit to unemployed people, and if there are many, it is very expensive

Question 7

What problems arise from low economic growth?

Answer 7

• Less output, so more unemployment
• Standard of level declines, people get poorer
• Businesses will be reluctant to expand into the country

Question 8

What is Gross Domestic Product (GDP)?

Answer 8

GDP is the total value of output of goods and services in a country in one year

Question 9

What are the four stages of the business cycle?

Answer 9

• Growth: GDP rising, everyone happy
• Boom: Caused by too much spending, prices rise
• Recession: Caused by too little spending. GDP falls
• Slump: Long recession, high unemployment

Question 10

What is meant by recession?

Answer 10

A period of falling GDP is called a recession

Question 11

What problems arise from imports being more than exports (a balance of payments deficit) ?

Answer 11

• May run out of foreign currency and have to borrow it

- Exchange rate depreciation occurs

Question 12

What is meant by “exchange rate”?

Answer 12

The exchange rate is the value of one currency iin terms of another

Question 13

What is exchange rate depreciation/appreciation?

Answer 13

• Depreciation: It is the fall in the value of a currency in relation to other currencies
• Appreciation: It is the rise in the value of a currency in relation to other curriencies

Question 14

What are three government economic policies?

Answer 14

• Fiscal policy: Change in government spending/tax rates
• Monetary policy: Change in interest rates by the gov
• Supply side policies: Improving efficiency of supply

Question 15

What are the two types of taxes?

Answer 15

• Direct taxes: Come from incomes (e.g. Income tax)

- Indirect taxes: Added to prices of goods (e.g. VAT)

Question 16

Name four types of taxes

Answer 16

• Income tax: A percentage of people’s incomes
• Corporation tax: A percentage of businesses’ profits
• VAT: A tax added to the price of products
• Import tariffs: Taxes on importing goods

Question 17

What are effects of higher interest rates?

Answer 17

• Firms/consumers will be less likely to borrow
• Higher exchange rate (maybe)
• Consumers’ disposable income reduces
• Firms have to pay back more interest, so profit lessens

Question 18

Name three supply side policies.

Answer 18

• Privatisation: Improves efficiency
• Improving training/education: Increase in skilled workers
• Increase competition: More efficiency, less monopolies

Question 19

What are externalities?

Answer 19

Externalities are:

• External costs: costs paid for by society coz of a business
• External benefits: gains of society coz of a business

Question 20

What is sustainable development (with examples)?

Answer 20

Development which does not put at risk the living standards of future generations, like

• Renewable energy
• Recycling
• Using less resources
• Using environment friendly products/production methods

Question 21

How can society force a business to be more environmentally-friendly?

Answer 21

• Pressure groups
• Government laws
• Fines, permits

Question 22

Benefits/limitations of ethical decisions?

Answer 22

+Good publicity, happy consumers, investors & workers
+Increase in long-term profits, less risk of legal action
-Higher costs–>Higher prices–>Less sales
-Less short term profits

Question 23

What is globalisation?

Answer 23

Globalisation is used to describe the rise in worldwide trade and movement of people b/w countries

Question 24

What are free trade agreements?

Answer 24

Free trade agreements are when countries agree to imports/exports with no trade barriers like tariffs/quotas

Question 25

Opportunities/Threats presented to businesses by globalisation?

Answer 25

+New markets/area for factories
+Can import materials/products
-More competition, employees may become defectors
-Multinationals threaten domestic economies

Question 26

Why do firms become multinational?

Answer 26

• Production is cheaper in LEDCs
• To get raw materials
• To avoid trade barriers, lessen transport costs
• New markets=Increased revenue

Question 27

Advantages of multinationals in a country?

Answer 27

+New jobs! -Only unskilled jobs created
+More competition -Local firms may fail
+More development -They use up scarce resources
+Taxes, so country gets more money!
-Profits sent to other countries