The Economic Environment of Business and Finance Flashcards
What are macro and micro economic environments?
Macro - national and global influences
Micro - how mechanism works
What are the 4 factors of production and their returns?
Land - rent
Labour - wages
Capital - interest
Entrepreneurship - profit
What is the difference between private sector and public sector investments?
Private - retained profit, shares
Public - higher taxation or increased deficit
What is the business cycle?
Recession
Depression
Recovery
Boom
What happens in a recession?
Consumer demand falls
Production and employment fall
Prices fall
Investment low
What happens during business recovery?
Output, employment and income rise
More investments
Price level slowly rising
What happens in a business boom?
Demand rises
Business profitable
Optimistic
What is inflation or deflation?
Increase in prices - lower purchasing power
Falling prices - low rates of growth
What are the 2 types of inflation?
Demand pull - caused by fiscal or credit
Cost push
What policies do the government use to control inflation?
Monetary policy
Fiscal policy - taxes
What are the 3 fiscal stances?
Increased borrowing and spending - expansionary
Increased tax - contractionary
Increased tax and spending - broadly neutral
What is quantitative easing?
Expansionary monetary policy - gov buying existing gov bonds to add liquidity
What does the demand curve look like?
Downward sloping curve y=-x
What factors determine demand?
Price
Marketing research
Product R&D
Advertising
Sales promo
Training of sales force
Effectiveness of distribution
After sales service
Credit to customers
Prices of substitute and complimentary goods
Income
Fashion
What are substitute and complementary goods?
S- alternative goods
C- goods bought together
