The External Environment (Part 1)

Question 1

Define business

Answer 1

An organisation or enterprising entity engaged in commercial, industrial, or professional activities.
OR
Organised efforts and activities of individuals to produce and sell goods and services for profit.

Question 2

What are the common features business organisations have?

Answer 2

Transformation of inputs and outputs i.e., materials, labour etc.

Question 3

What can businesses be?

Answer 3

Can be profit or non-profit

Question 4

Define circular flow model?

Answer 4

Demonstrates how money moves through society.

Question 5

Define economic activity

Answer 5

Flows of resources, output, income and expenditure
OR
The activity of making, providing, purchasing, or selling goods or services.

Question 6

Define expenditure

Answer 6

The action of spending funds
OR
Amount of money spent

Question 7

Why do economists use the circular flow of income?

Answer 7

To illustrate the central relationship between households and firms in a market-based economy.

Question 8

Define market-based economy (MBE)

Answer 8

An economy that is not completely controlled by the government.

Question 9

Give examples of countries that are not a market-based economy

Answer 9

Countries that are not MBE: China, North Korea etc.

Question 10

Define gross domestic product

Answer 10

Is the total amount of goods and services produced in an economy.

Question 11

What is GDP measured in the UK?

Answer 11

GDP is measured in quarters

Question 12

Define treasury

Answer 12

The management of money and financial risks in a business i.e. making judgements on whether the UK economy is increasing or decreasing.

Question 13

What happens if spending increases?

Answer 13

If spending increases and the no. of goods and services increases = balance

Question 14

Define Tariff

Answer 14

Is a tax imposed by one country on the goods and services imported from another country.

Question 15

Give an example of government spending

Answer 15

E.G. HS2 which will increase connectivity between North and South.

Investing more into wind energy projects to reduce UK emissions (68% by 2030)

Question 16

An example of inflation

Answer 16

If producing the same amount of goods and services but are required to spend more - inflation.

Question 17

Why do governments interfere with the market/get involved?

Answer 17

Governments intervene to address inefficiency.

Question 18

Give examples of what/why the government does to interfere with the market

Answer 18

Tries to combat these/market inequalities through regulation, subsidy, and taxation

To promote economic fairness

Unwillingness of the market to produce public good: defence, social services, infrastructure

Distributing resources fairly

Question 19

Define macroeconomics

Answer 19

Is a branch of economics that studies the behaviour and performance of an economy as a whole. i.e. using taxes to regulate economy growth/stability

Question 20

Define aggregation

Answer 20

The act of grouping things or items as a whole.

Question 21

What are the governments five main macro objectives?

Answer 21

Controlling inflation - don’t want prices to go up

Economic growth - making sure it’s slow and steady

Controlled public borrowing - borrowing from pensions

Reducing unemployment - more people employed more taxes

Favourable balance of payments - more export less import

Question 22

What is the governments response?

Answer 22

Fiscal policy: Involves the government changing tax rates and levels of government spending to influence the economy.
OR
Government spending (G) and Taxation (T) set out in the budget

Monetary Policy: Involves changing interest rate and influencing the money supply (controlled by the central bank)
OR
Price of credit within the economy

Question 23

Define quantitative easing

Answer 23

Is where the government puts money back into the economy

Question 24

How does quantitative easing work?

Answer 24

Central banks increase the supply of money by buying government bonds and other securities. (doesn’t involve printing more banknotes - create new money digitally)

Question 25

Define PESTLE

Answer 25

Is a framework to analyse the key factors (political, economic factors, sociocultural factors, technological, legal, and environmental) influencing an organisation from the outside.

Question 26

Examples for PESTLE

Answer 26

Political: Gov stability, taxation policy

EF: Business cycles, interest rates

SF: Population demographic, lifestyle changes

Technological: Gov spending on research, new discoveries/development

Environ: Environmental protection laws, waste disposal

Legal: Health and safety, product safety