Section 1

Question 1

Free trade

Answer 1

No restrictions or trade barriers exist that might prevent or limit trade between countries

Question 2

Tariffs

Answer 2

Taxes imposed on imported goods to make them more expensive than they would otherwise be

Question 3

Quotas

Answer 3

Limits on the physical quantity or value of certain goods that may be imported

Question 4

Voluntary export limits

Answer 4

An exporting country agrees to limit the quantity of certain goods sold to one country

Question 5

Protectionism

Answer 5

Using barriers to free trade to protect a country’s own domestic industry

Question 6

Globalization

Answer 6

The increasing freedom of movement of goods, capital and people around the world

Question 7

Multinational business

Answer 7

Business organization that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries

Question 8

Privatization

Answer 8

Selling state owned and controlled business organisations to investors in the private sector

Question 9

External growth

Answer 9

Business expansion achieved by means of merging with or taking over another business, from either the same or a different industry

Question 10

Merger

Answer 10

An agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owning shares in the newly merged business

Question 11

Take over

Answer 11

When a company buys more than 50% of the shares of another company and becomes the controlling owner of it

Question 12

Synergy

Answer 12

A whole is greater than the sum of parts, a larger business will be more successful than two separate businesses

Question 13

Monopoly

Answer 13

A situation in which there is only one supplier, but this is very rare, for government policy purposes this is usually redefined as a business controlling at least 25% of the market

Question 14

Social audit

Answer 14

A report on the impact a business has on society, this can cover pollution levels, health and safety records, sources of supplies, Customer satisfaction and contribution to the community

Question 15

Information technology

Answer 15

The use of electronic technology to gather, store, process and communicate information

Question 16

Innovation

Answer 16

Creating more effective processes, products or ways of doing things in a business

Question 17

Computer aided design

Answer 17

Using computers and IT when designing products

Question 18

Computer aided manufacturing

Answer 18

The use of computers and computer controlled machinery to speed up the production process and make it more flexible

Question 19

Environmental audits

Answer 19

Assess the impact of a business activities on the environment

Question 20

Pressure groups

Answer 20

Organisations created by people with a common interest or aim who put pressure on businesses and governments to change policies so that an objective can be reached

Question 21

Economic growth

Answer 21

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

Question 22

Gross domestic product (GDP)

Answer 22

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

Question 23

Business investment

Answer 23

Expenditure by a business on capital equipment, new technology and research and development

Question 24

Business cycle

Answer 24

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

~> Boom ~ Business/consumers confidence strengthens ~ demand increases ~ job creation + higher wages

~> Recession ~ falling demand ~ decrease in unemployment  ~ making loss/closing down

~> Slump ~ increased costs (high wages + inflation) ~ low profitability ~ fall in demand

~> Growth ~ increase in demand  ~ unemployment decreases

Question 25

Recession

Answer 25

A period of six months or more of declining real GDP

Question 26

Inflation

Answer 26

An increase in the average price level of goods and services. Result in a fall in the value of money

Question 27

Deflation

Answer 27

A fall in the average price level of goods and services

Question 28

Working population

Answer 28

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

Question 29

Unemployment

Answer 29

This exists when members of the working population are willing and able to work but are unable to find a job

Question 30

Cyclical unemployment

Answer 30

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

Question 31

Structural unemployment

Answer 31

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

Question 32

Frictional unemployment

Answer 32

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

Question 33

Balance of payments- current account

Answer 33

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 34

Exchange rate

Answer 34

The price of one currency in terms of another

Question 35

Imports

Answer 35

Goods and services purchased from other countries

Question 36

Exports

Answer 36

Goods and services sold to consumers and businesses in other countries

Question 37

Exchange rate depreciation

Answer 37

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

Question 38

Fiscal policy

Answer 38

Concerned with decisions about government expenditure, tax rates and government borrowing

~> expansionary  ~ raise government spending ~ lower tax rates ~ result increase in demand ~ result increase in output/employment

~> contractionary ~ reduce government spending ~ raise taxes  ~ result reduce in national demand ~ result reduce output/employment/inflation

Question 39

Policies

Answer 39

Long term execution of a plan

Question 40

Government budget deficit

Answer 40

The value of government spending exceeds revenue from taxation

Question 41

Government budget surplus

Answer 41

Taxation revenue exceeds the value of government spending

Question 42

Monetary policy

Answer 42

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

Question 43

Market failure

Answer 43

When markets fail to achieve the most efficient allocation of resources and there is under or over production of certain goods or services

Government may intervene:
~ limit external costs
~ increase labour training

Question 44

External costs

Answer 44

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

Question 45

Integration

Answer 45

Conglomerate
~> 2 companies merge; products are unrelated

Horizontal
~> 2 firms merge which are in the same sector/competitor

Vertical backward
~> merging of firms in different stages of production of the same good/industry
» merging with supplier

Vertical forward
~> merging of different stages of production of the same good/industry
» integration with customer

Question 46

Strategic alliance

Answer 46

External growth without integration or change in ownership

Question 47

Causes of inflation

Answer 47

Cost push demand
~ higher production cost
~ lower exchange rate
~increasing resource prices
~ higher wage demands

Demand pull inflation
~ during boom
~ supply shortage
~ increase demand raises price