Unit 6

Question 1

What is Balance of Payments?

Answer 1

The difference between the values of export and import goods entering and exiting a country over a year

Question 2

Why does a COuntry not want a Balance of Payents Deficit?

Answer 2

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

Question 3

What are a Goverments 4 objectives to a healthy economy?

Answer 3

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

Question 4

What are the 4 main stages in a business cycle?

Answer 4

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

Question 5

What are Taxes?

Answer 5

a charge / fee paid to goverment on income, goods and services

Question 6

Direct Tax

Answer 6

the tax charged on personal income or tax on the profit made by a business

Question 7

Indirect Tax

Answer 7

the tax charged on the price of goods and services which is added before they are bought

Question 8

What are examples of Direct Tax?

Answer 8

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

Question 9

What are examples of Indirect Tax?

Answer 9

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

Question 10

What happens if the Goverment cuts Interest Rates?

Answer 10

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

Question 11

What are Externalities?

Answer 11

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

Question 12

What is Sustainable Development?

Answer 12

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.

Question 13

What is Corperate Social Responsability?

Answer 13

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

Question 14

What is Globalisation?

Answer 14

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

Question 15

Cost Benifit Analysis

Answer 15

Analysis of the costs and benifits of a project, the focous being on the social benifits and costs

Question 16

What are Characteristics of Globalisation?

Answer 16

Growth in International trade
Global Recognition of Brands
Dependency of Global Economies
Countries operating in more than one country

Question 17

Growth of Globalisation - migration (movement of people from one place to another) and tech has increased the pace of Globalisation.

Answer 17

Growth of Globalisation - migration (movement of people from one place to another) and tech has increased the pace of Globalisation.

Question 18

What are Oppertunities and Threats of Globalisation?

Answer 18

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

Question 19

What are tarrifs?

Answer 19

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

Question 20

What is a Quota?

Answer 20

A physical limit on the quantity of goods that can bbe imported and exported

Question 21

What are Benifits on a Business becoming a multinational company?

Answer 21

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

Question 22

What are threats on a Business becoming a multinational company?

Answer 22

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

Question 23

What are Benifits and Drawbacks of a multinational business to a host country?

Answer 23

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

Question 24

What is an Exchange Rate?

Answer 24

The rate at which ones currency can be exchanged for that of another

Question 25

Why does a currency depreciate?

Answer 25

A currency is said to depreiate when the value of the currency goes down in relation to another currency

Question 26

Why does a currency Appreciate?

Answer 26

This is when the value of the currency increases with respect to another