UNIT 6 - Chap 27: Economic Issues

Question 1

What is GDP?

Answer 1

is Gross domestic Product (This is the total value of output of goods and services in a country in one year. ​

Question 2

4 Stages in the business cycle?

Answer 2

• Growth
• Boom
• Recession
• Slump

Question 3

What is growth?

Answer 3

Growth: GDP is rising and unemployment is falling​

Question 4

What is a boom?

Answer 4

Boom: GDP is very high. Unemployment is low meaning increased demand for goods and services. Business will want to increase output but will struggle to find employees ​

Question 5

What is recession?

Answer 5

Recession: GDP is falling. Unemployment is high and lots of business will face lower demand. ​

Question 6

What is a slump?

Answer 6

Slump: GDP is falling greatly, there is very high level of unemployment and demand is low. Business will struggle to survive.

Question 7

3 impact on Businesses of?

Answer 7

• Inflation
• Low GDP
• Unemployment

Question 8

Describe inflation?

Answer 8

Inflation is the increase in the average price of goods and services over time. This may mean business costs (raw material costs) will increase. Furthermore, if consumers are now spending more on necessities, they will have less disposable income left for unessential goods and so demand will decrease for businesses that sell unessential products/services. Employees may try to negotiate higher wages due to everything becoming more expensive. ​

Question 9

Describe low GDP?

Answer 9

If GDP is lower, unemployment is higher and so there is less demand for goods and services so people have less money to buy goods and services, particularly luxury goods. However, if there is higher unemployment rates, it may be easier for a firm to find workers.

Question 10

Describe unemployment?

Answer 10

If unemployment is high, people’s income levels will be be lower and so demand for businesses goods and service will decrease. However, during high unemployment, it is easier to recruit workers, as there are more available​

Question 11

The Government has the following 4 Economic Objectives ​(4)

Answer 11

Low Inflation ​

Low unemployment ​

Economic Growth ​

Balance of Payments (Having more exports than imports into the Country)

Question 12

The main way the Government can influence the Economy is by (3)

Answer 12

• Changing taxes (Known as Fiscal Policy) ​
• Changing Government Spending (Known as Fiscal Policy) ​
• Changing interest rates (Known as Monetary Policy

Question 13

The 4 Fiscal Policy- Changing tax rates​?

Answer 13

• Income tax
• Corporation tax
• Indirect tax
• Increasing Tariffs

Question 14

Explain income tax?

Answer 14

Income Tax- If the Government increases income tax this means people would have a lower disposable income. Resulting in less demand for firms ​

Question 15

Explain the corporation tax?

Answer 15

Corporation Tax- This is tax on a businesses’ profit. If the Government increases this tax, this means a business will have lower profits after tax and so less retained profit. Also means less dividends for share holders.​

Question 16

Explain indirect tax?

Answer 16

Indirect Taxes- This is a tax on goods and services. If this increases, goods and services are now more expensive, and so demand decreases for firms UNLESS the good is price inelastic. Furthermore, If everything is now more expensive employees may try to negotiate higher wages, increasing costs for a firm. ​

Question 17

Explain increasing tariffs?

Answer 17

Tariffs are a tax on imports. If these increase: Businesses raw materials may be more expensive IF they import them. If their competitors are overseas, their competitors goods now will be more expensive to import, leading to an increase in sales for domestic firms.

Question 18

Explain the Fiscal Policy - Changing Government Spending ​

Answer 18

If the government increases Government spending (e.g. on schools, healthcare, military, infrastructure) this will increase demand for firms that provide related goods and service. E.g. firms that produce equipment for schools, hospitals and military and construction companies. ​

Question 19

4 impacts of the Government increasing interest rates Monetary Policy?

Answer 19

Firms with existing (variable rate) loans will now have to pay more money on interest , increasing their fixed costs. ​

If Consumers have taken out (variable rate) mortgages to buy their homes, their monthly interest repayments will now be higher, leading to less disposable income, leading to lower demand for goods and services.​

Consumers will be less likely to borrow money as interest rates are high, and so consumers will have less money available to buy luxury goods and services​

Managers thinking about borrowing money to expand may delay their decision. Resulting in less chance of expansion for a business.

Question 20

How Businesses Might respond to the change of increase tax? (2)​

Answer 20

1. Reduce product prices so they are more affordable for consumers ​
2. Find Cheaper suppliers so can reduce prices of products and still maintain profit

Question 21

How Businesses Might respond to the change of increase tariffs on imports? (1)​

Answer 21

Find domestic suppliers instead of overseas suppliers ​

Question 22

How Businesses Might respond to the change of increase interest rates? (3)​

Answer 22

1. Develop and produce cheaper goods so that consumers can afford them ​
2. Delay investments as the cost of borrowing is too high ​
3. sell shares instead of taking a bank loan as a source of finance​

Question 23

How Businesses Might respond to the change of increase in government spending? (1)​

Answer 23

Switch marketing strategy to gain more Government contracts e.g. building or equipping schools and hospitals ​