section 6 Flashcards
balance of payments
the difference between the values of export and import goods and services of a country over a year
government objectives
- a healthy balance of payments
- low unemployment rate
- low inflation rate
- economic growth
inflation
sustained increase in the country’s average price level
level of unemployment
the percentage of the population that are willing and able to work but unable to find a job
gross domestic product (GDP)
the value of all goods and services produced by a country in a year
the business cycle
- growth
- boom
- recession
- slump
characteristics of a growth stage
economy recovers or grows
- existing businesses grow and make profits
- falling unemployment
- higher standard of living
characteristics of a boom stage
peak of the business cycle
- business investments and profits are at their highest levels
- inflation rises, high levels of demand for goods and services cause prices to rise
- very low unemployment rates, increased wage costs for business
characteristics of recession stage
sustained reduction in GDP
- decline in economic activity until it reaches a minimum (slump)
- falling demand by consumers leads to falling profits
- unemployment rises as businesses are not doing well and have to cut costs
characteristics of a slump stage
recession stage of the economy is at its worst
- low production of goods and services, many close down
- low demand
- high unemployment
interest rate
the cost to a person or business of borrowing money from a lender such as a bank
tax
a charge/fee paid to the government on income, goods and services
how government meets economic objectives
through government policies
types of government policies
- demand
- supply
demand-side policies
fiscal policies:
- gov. income: taxes, borrowing
- gov. supply: subsidies, public services
monetary policies:
- adjusting the interest and foreign exchange rates.. to influence the demand and supply of money in the economy
expansionary= grow economy
contractionary= slow down the economy
supply-side policies
- privatisation: selling gov. organisations to private individuals= increases efficiency= increases supply
- improve training and education: spend more money on education so people can become more skilled= increases productivity
- increased competition: deregulation increases competition and therefore productivity
direct tax
the tax charged on personal income or tax on the profit made by a business
- income tax
- corporation tax
indirect tax
the tax charged on the price of goods and services, which is added to the price of goods and services before they are bought
- VAT
- import tariffs
disposable income
the amount of income left for individuals after taxes have been paid
how business activity can affect us and our environment
- pollution
- waste
- emission of greenhouse gases
- use of energy
- use of natural resources
why businesses want to be environmentally-friendly
- sense of CSR
- better brand-image
- consumers are becoming socially aware and are only willing to buy environmentally-friendly products
- using non-renewable resources will raise their prices in the future
why businesses don’t want to be environmentally friendly
- expensive, reduces profits
- firms will have to increase prices= demand falls
- businesses claim it is the gov.’s duty to clean up
externalities
costs or benefits that affect third parties not involved in the consumption or production activity causing these costs or benefits
social cost
the negative impact of a business decision on society
social benefit
the positive impact of a business decision on society
cost-benefit analysis
analysis of the costs and benefits of a project, the focus being on the social costs and benefits
project goes ahead if social benefits outweigh social costs
sustainable development
a business activity is said to be sustainable if it has a positive overall impact on the environment
how businesses can be sustainable
- use renewable sources of energy
- used packaging made of recycled material
- avoid unnecessary travel
- use packaging that can be recycled or reused
how pressure groups can make their points
- boycotting, refusing to buy a business’s products and influencing over consumers to do the same
- petitioning, making an official complaint to the gov. on an issue
- increasing awareness
- lobbying, attempting to influence the policy-making of the gov.
how businesses respond to environmental pressures
- using green manufacturing methods
- reducing their use of energy
- obeying gov. regulations
how gov. can limit the negative effects of business activity
punishments:
- penalties in the form of fines, closure of facilities and imprisonment on businesses that ignore pollution targets
- charging a tax on the commercial use of energy
- businesses may not be permitted to set up in some areas
incentives:
- reward greenest companies with tax credits
- policies that allow tax exemptions for companies using renewable sources of energy
multinational company
an organisation that has operations in more than one country
globalisation
the process by which countries are connected with each other because of the trade of goods and services
reasons to become a multinational company
- lower labour costs, cheaper material
- avoiding transport costs, produce goods nearer to market
- avoid trade barriers on imports
- risk spreading
barriers to trade
- import quotas: restriction on the quantity of goods that can be imported into the country
- import tariffs: taxes on imports
trade bloc
a group of countries that trade with each other and are usually part of a free trade agreement
factors that increase the pace of globalisation
- migration
- improvement in technology
- free-trade agreements
home country
the domestic country where a multinational starts its operations
host country
the foreign country where a multinational sets up its operations
tariff
a tax applied to the value of imported and exported goods
quota
a physical limit on the quantity of goods that can be imported and exported
why not to become a multinational country
host country has:
- language barrier
- cultural differences
- lack of knowledge about the local market
- strict regulations
how multinational companies help host countries
- increases choice and quality of goods and services
- improves country’s reputation
- increases employment opportunities
limitations to the host country of a multinational company
- increased competition for local businesses
- environmental damage
- exploitation of natural resources
exchange rate
the rate at which one country’s currency can be exchanged for that of another
if a currency appreciates
good for importers, bad for exporters
if a currency depreciates
good for exporters, bad for importers
depreciation
a currency is said to depreciate if the value of the currency goes down with respect to another
appreciation
a currency is said to appreciate if the value of the currency increases with respect to another
