Pest Factors

Question 1

What is pest analysis

Answer 1

Techniques used to help a firm analyse the factors in the external environment that may have an impact on it, therefore allowing it to decide on the best response to changes

Question 2

What does PEST stand for and give examples of each

Answer 2

• Political = Brexit
• Economic = recession
• Social = ageing population
• Technological = artificial intelligence

Question 3

What are the 4 targets that the government wishes to achieve

Answer 3

• low inflation
• low unemployment
• high economic growth
• balance of payments surplus

Question 4

How are the U.K. firms affected if the 4 gov targets aren’t being met

Answer 4

• high inflation = raw material prices rise as do wages so costs rise and firm becomes uncompetitive
• high unemployment = demand for products decreases as less people have high disposable income
• low growth = output decreases as demand for products drops because people less disposable income so profit drops
• balance of payments deficit = foreign competition is high. This results in lower output which results in lower profits

Question 5

Define macroeconomic policy

Answer 5

Any policy which has an impact on the whole of the U.K. especially to achieve the 4 government targets

Question 6

What is microeconomic policy

Answer 6

Any policy that is aimed at smaller/individual markets e.g subsidising nursery’s with taxes

Question 7

Define monetary and fiscal policy

Answer 7

Monetary = interest rates being altered by the Bank of England to control the economy

Fiscal = changes in taxation or government spending to control the economy

Question 8

define direct and indirect taxes

Answer 8

Direct = taxes on income e.g income tax/corporation tax

Indirect = taxes on spending e.g VAT

Question 9

What are subsidies

Answer 9

Financial support paid by the government to businesses

Question 10

Define budget deficit

Answer 10

When a government faces a financial deficit for a year because tax revenue is less than overall government expenditure

Question 11

What is the current account

Answer 11

Part of the balance of payments

Question 12

What is government intervention

Answer 12

Government becoming involved in the operation of a market/firm

Question 13

What is laissez-faire

Answer 13

Philosophy whereby the government minimises intervention in markets or the economy

Question 14

Define privatisation

Answer 14

Transfer ownership of organisations from public sector (gov) to private sector (e.g apple)

Question 15

What may the choice of policy chosen depend on

Answer 15

Political party in charge

Question 16

Explain monetary policy in more detail

Answer 16

Controls interest rates. Bank of England does it but must bear governments fiscal policy in mind when making decisions

Question 17

Explain fiscal policy in more detail

Answer 17

Sets tax rates/government spending. Raising taxes cools economy down and cutting taxes heats it up. Low rates of tax give firms more profits and encourage business activity. Government spending on social services, health etc heats up the economy

Question 18

Explain how expansionary fiscal policy works

Answer 18

• increase economic activity by cutting taxes/increase government spending
• results in increased output and spending, less unemployment but possibly inflation and more imports

Question 19

Explain how contradictionary fiscal policy works

Answer 19

• reduce level of economic activity by increasing taxes/cutting government spending
• results in lowered output, spending and employment. May curb inflation and spending on imports

Question 20

How does the government use monetary/fiscal policy to boost economic growth/lower unemployment

Answer 20

Monetary = reduce interest rates

Fiscal = reduce taxes / increase gov spending

Question 21

How does the government use monetary /fiscal policy to lower inflation and control economic growth

Answer 21

Monetary = increase interest rates

Fiscal = increase taxes / cut gov spending

Question 22

What is the aim of supply side policies

Answer 22

Help producers to operate effectively by encouraging efficiency, innovation and competitiveness

Question 23

Give examples of supply side tactics/policies

Answer 23

• privatise nationalised industries
• offer support/grants
• reduce employers national insurance contributions = lowering their costs

Question 24

What is a laissez-faire government

Answer 24

When the government doesn’t interfere with the economy

Question 25

Intervention: how do governments intervene in the economy

Answer 25

By charging taxes, passing laws which affect firms, providing public services etc

some governments intervene more than others

Question 26

Give the arguments for governments opting to do a laissez-faire approach

Answer 26

• privatisation = firms will become more competitive and will become more efficient as they have to compete
• reducing regulations = governments will not have to spend money on subsidising firms

Question 27

How can political change effect businesses

Answer 27

• impacts on trading e.g changes in priorities for public spending or uks relationships with other countries can open/close markets
• political change can bring legal change such as environmental legislation etc
• some governments intervene in market, using fiscal policy etc however some don’t

Question 28

What does the impact of political change on a business depend on

Answer 28

• if government is laissez-faire or interventionist
• economic conditions
• type of business
• power of pressure groups