Unit 6 Flashcards
What is Balance of Payments?
The difference between the values of export and import goods entering and exiting a country over a year
Why does a COuntry not want a Balance of Payents Deficit?
Because there is more forigen currency flowing out than coming into a country. The goverment of the country then may have toborrow forigen currency from other countries at expensive rates of interest which may affect the exchange rate of the country
What are a Goverments 4 objectives to a healthy economy?
A positive balance of payments - when there are more exports than imports (more foreign currency coming into a country than out a country
Low inflation - when inflation is low, peolpe enjoy a better standard of living as they can afford to pay for goods and services
Low Unemployment - they want as many people as possible to contribute to the total output of the country and improve economic growth
Economic Growth - shows the economic growth of a country
What are the 4 main stages in a business cycle?
Growth - the stage where the economy recovers or grows - positive outlook for new businesses / existing businesses grow
Boom - peak of the business cycle - businesses investments and profits at highest levels
Rescession - Economy shrinks in size - falling demand by consumers leads to falling profits
Slump - this is the rescession stage of the economy at its worst - low demand for goods and services
What are Taxes?
a charge / fee paid to goverment on income, goods and services
Direct Tax
the tax charged on personal income or tax on the profit made by a business
Indirect Tax
the tax charged on the price of goods and services which is added before they are bought
What are examples of Direct Tax?
Income Tax - The amount of income tax depends on the amount of income
Corporation Tax - This is the tax paid by businesses on the profits they make
What are examples of Indirect Tax?
Value Added Tax - VAT - added to the price of goods and services we buy, makes them more expensive and harder to buy - goverment doesnt put value addded tax on essential items - Busineesses make fewer sales because demand for the goods and services falls
Sales Tax - Tax paid by consumers on the purchase of some items - there is a differet rate of sales tax based on an item
What happens if the Goverment cuts Interest Rates?
Consumers Borrow more (its cheaper to borrow)
Consumers have more money to spend on products
Entrepreneurs start more businesses (costs of borrowing is lower)
Businesses invest more
The economy grows
The government cuts interest rates when the economy is growing slowly and raise interest rates when the economy is growing too rapidy
What are Externalities?
Externalities: an external consequence of business activity (impact affects others, not the business)
Eg The pollution of surrounding areas by a factory - a negative externality
Eg A whole community impoverished because they all work in one industry which pays poorly - a negative externality
Eg For every pair of socks purchased, a second pair is donated by the company to a homeless shelter - positive externality
What is Sustainable Development?
Sustainable Development - When a business activity is said to be sustainable due to the ositive overall impact on the enviroment and its stakeholders
This could be examples of using renewable sources of energy, use packaging that can be recycled or reused
For a business, sustainable development means growth and profit, without causing long term harm to itself, or to the wider society.
What is Corperate Social Responsability?
Corporate Social Responsibility - CSR aims to ensure that companies conduct their business in a way that is ethical, and with a view to sustainable development. This means taking account of their social, economic and environmental impact, and consideration of human rights
What is Globalisation?
Globalisation - The process by which countries are connected with each other because of the trade of goods and services
Globalisation has led the increase in business / trade activity between countries all over the world
Cost Benifit Analysis
Analysis of the costs and benifits of a project, the focous being on the social benifits and costs
What are Characteristics of Globalisation?
Growth in International trade
Global Recognition of Brands
Dependency of Global Economies
Countries operating in more than one country
Growth of Globalisation - migration (movement of people from one place to another) and tech has increased the pace of Globalisation.
Growth of Globalisation - migration (movement of people from one place to another) and tech has increased the pace of Globalisation.
What are Oppertunities and Threats of Globalisation?
Oppertunities - Businesses can access more markets, which may lead to an increase in sales
Labour may be cheaper in host nations and so businesses can go from lower costs
Threats: Exchange Rate fluctuations may cause lowering of profits
Competition will increase for both local and International Businesses
What are tarrifs?
Atax on a good imported from another country
A tarrif increases the cost of the imported goods so therefore businesses have to sell the imported goods at.a higher price. This reduces local demand for the goods and benifits local businesses due to local compitition
What is a Quota?
A physical limit on the quantity of goods that can bbe imported and exported
What are Benifits on a Business becoming a multinational company?
Easier acess to raw materials - by setting up where the raw materials are easily found, the transportstion costs and time are reduced
Lower cost of labour - if there is a high supply of labour in the country then it will be cheaper
Ecnomies of Scale - by selling in many different countries, the company can benifit from economies of scale
What are threats on a Business becoming a multinational company?
Language Barrier - this may make it hard to communicate with the local workforce in the host country, which might lead to mistakes, which reduce efficiency
Strict Regulations - this could be different quality standards which willl make it harder for the business to operate in another country. Ties into cultural differences
What are Benifits and Drawbacks of a multinational business to a host country?
Benifits - Increases the Quality of goods and services - due to the increase in competition, the local market will have acess to a greater variety of goods
Increases oppertunities for employment - This makes the countrys reputation look good
Drawbacks - Exploitation of natural resources - sometimes these companys will set up their operations nearer to the natural resoureces although in the long run, this may lead to scarcity
What is an Exchange Rate?
The rate at which ones currency can be exchanged for that of another
Why does a currency depreciate?
A currency is said to depreiate when the value of the currency goes down in relation to another currency
Why does a currency Appreciate?
This is when the value of the currency increases with respect to another
