Section 6 - External influences

Question 0

Unemployment

Answer 0

unemployment exists when people who are willing and able to work cannot find a job

Question 1

Inflation

Answer 1

the increase in the average price of goods and services over time

Question 2

Economic growth

Answer 2

when a country’s Gross Domestic product increases - more goods and services are produced than in the previous year

Question 3

Balance of payments

Answer 3

the balance of payments records the difference between a country’s exports and imports

Question 4

Real income

Answer 4

the value of income, and it falls when prices rise faster than money income

Question 5

What are government’s economic objectives

Answer 5

low inflation, low unemployment, economic growth, balance of payments between exports and imports

Question 6

How does inflation affect a business?

Answer 6

Workers real income will fall so they will demand higher wages; prices of goods produced in the country will rise so people will buy foreign goods and there will be unemployment; businesses won’t want to expand and the living standard will fall.

Question 7

Gross domestic product

Answer 7

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

Question 8

How does unemployment affect a business?

Answer 8

labour becomes cheap for the business

Question 9

How does poor economic growth affect a business?

Answer 9

Output is falling so fewer workers are needed; the number of goods or services the population can afford will decrease so businesses will need make cuts

Question 10

exports

Answer 10

goods or services sold from one country to other countries

Question 11

imports

Answer 11

goods or services brought in by one country from other countries.

Question 12

what is the business/trade cycle?

Answer 12

the business cycle is the pattern that the GDP follows. Growth (GDP rises, everything is dandy); Boom (there is too much spending, prices rise and skilled workers become few and far between. Panic at the disco); Recession (too little spending, GDP falls :( workers lose jobs, businesses don’t get good profits); Slump (extended recession, the meteor of the business world; only those that evolve, survive)

Question 13

How does a balance of payments deficit affect a business?

Answer 13

a deficit is when there is too many imports and not enough exports (cough, america, cough, cough). Exchange rates depreciate which is good for exporters but not good for importers

Question 14

Exchange rate

Answer 14

the price of one currency in terms of another, eg £1: $1.5

Question 15

Exchange rate depreciation

Answer 15

the fall in value of a currency compared with other currencies

Question 16

Fiscal policy

Answer 16

any change by the government in tax rates or public-sector spending.
This can be a change in income tax, profit tax, indirect tax, import tariffs and quotas or changes in government spending. What do you think the effect of raising these taxes will be on businesses? (stepping stones!

Question 17

Direct taxes

Answer 17

taxes paid directly from incomes eg income tax or profits tax

Question 18

Indirect taxes

Answer 18

taxes added to the prices of goods and taxpayers pay the tax as the purchase the goods eg VAT

Question 19

Disposable incme

Answer 19

the level of income a taxpayer has after paying income tax

Question 20

How do governments influence the economy

Answer 20

fiscal policy (taxes and government spending); monetary policy (interest rates, supply side policies.

Question 21

Monetary policy

Answer 21

A change in the interest rates by the government or central bank, eg the European Central Bank. What are the main effects of higher interest rates on: firms with loans, managers considering taking loans, consumers who took out loans, individuals making a deposit? (stepping stones?)

Question 22

Exchange rate appreciation

Answer 22

the rise in the value of a currency compared to other currencies

Question 23

Supply side policies

Answer 23

When a government tries to make their economy more efficient by privatisation (moving public sector businesses into the private sector); improving training/education (ie making DT mandatory in schools); increasing competition in all industries (reducing government controls)

Question 24

How would a business react to increasing income tax?

Answer 24

lower price on products (may lead to lower profits); produce cheaper products (may damage brand image, though)

Question 25

How would a business react to increased tariffs on imports?

Answer 25

focus more on domestic market (it might still be more profitable to export though depending on tariff); buy local supplies rather than imported ones (quality might go down)

Question 26

How would a business react to increased interest rates?

Answer 26

reduce investment (other companies may continue to grow, lose market share); develop cheaper products (might affect quality); sell assets to pay off loans (assets might be needed for later)

Question 27

Social responsibility

Answer 27

When a businesses decision benefits stakeholders, eg a decision to protect the environment by reducing pollution by using the latest ‘greenest’ productiono.

Question 28

Environment

Answer 28

Our natural world, including pure water and undeveloped country side

Question 29

Private costs

Answer 29

private costs of an activity are the costs paid for by the business

Question 30

private benefits

Answer 30

private benefits of an activity are the gains to a business

Question 31

External costs

Answer 31

External costs are costs paid for by the rest of society, other than the business, as a result of business activity

Question 32

External benefits

Answer 32

External benefits are the gains to the rest of society other than the business, resulting from business activity.

Question 33

Social costs

Answer 33

Social costs = external costs + private costs

Question 34

Social benefits

Answer 34

Social benefits = external benefits + private benefits

Question 35

Externalities

Answer 35

the effects of business activity eg an externality of BSC is noise bc kids are annoying.

Question 36

Sustainable development

Answer 36

sustainable development is development which does not put at risk the living standards of future generations

Question 37

Sustainable production methods

Answer 37

sustainable production methods are those that do minimum damage to the environment

Question 38

Pressure group

Answer 38

A pressure group is made up of people who want to change business (or government) decisions and they take action such as organising consumer boycotts.

Question 39

Consumer boycott

Answer 39

when consumers decide not to buy products from businesses that do not act socially in a responsible way.

Question 40

What can businesses do for sustainable development?

Answer 40

Use renewable energy, recycle waste, use fewer resources, develop ‘environmentally friendly’ products.

Question 41

Pollution permit

Answer 41

licenses to pollute up to a certain level. Governments sell them to companies. Sustainable companies can sell theirs for cash inflow.

Question 42

Ethical decisions

Answer 42

Ethical decisions are based on a moral code. Sometimes referred to as ‘doing the right thing’

Question 43

Globalisation

Answer 43

the term now widely used to describe increase in worldwide trade and movement of people and capital between countries. Reasons include: increasing free trade agreements; cheaper travel links; emerging markets.

Question 44

Free trade agreements

Answer 44

free trade agreements exists when countries agree to trade imports/ exports with no barriers such as tariffs and quotas.

Question 45

What are the potential opportunities for businesses?

Answer 45

Start selling exports to other countries; open factories/ operations in other countries; import products to sell domestically; import supplies but manufacture domestically.

Question 46

What are the potential threats to globalisation?

Answer 46

Increasing imports increases competition; increasing multinationals means increasing competition; employees may leave for other companies

Question 47

Import quota

Answer 47

a restriction on the quantity of a product that can be imported

Question 48

Protectionism

Answer 48

when a government protects domestic firms from foreign competition using tariffs quotas.

Question 49

Multinational business

Answer 49

those with factories, production of service operations in more than one country. Also known as transnational businesses

Question 50

Impact on a country of multinational businesses

Answer 50

+jobs created +increase output of goods/services +increase in exports +governments get the businesses taxes +more choice for consumers
-unskilled job creation :( -local firms have more competition -repatriation of profits (profits sent away) -use up resources -lots of power (may ask for big grants etc.)

Question 51

Exchange rate

Answer 51

the price of one currency in terms of another eg £1: $1.5

Question 52

Currency appreciation

Answer 52

occurs when the value of a currency rises - it buys more of another currency than before. Importing businesses have lower costs :). Exporting businesses have to raise prices :(.

Question 53

Currency depreciation

Answer 53

Occurs when the value of a currency falls - it buys less of another currency. Importing firms have higher costs :(. Exporting businesses can lower prices :) (good because then demand increases)