Unit 6: Chapter 27 Flashcards
Economic Issues
What is the business cycle?
the recurring pattern of ups and downs in business activity
What is GDP?
gross domestic product, the total value of output of goods and services in a country in one year
What are the stages of the business cycle?
growth, boom, recession, slump
What happens in the growth stage?
the GDP rises, unemployment falls and the living standards of the country increase
What happens in the boom stage?
too much spending happens so prices rise quickly. there becomes shortages of skilled workers and business costs rise
What happens in the recession stage?
when there is a period of falling gdp, this is caused by too little spending and businesses experience falling demand and profits. unemployment increases.
What happens in the slump stage?
session and long-drawn-out recession, high levels of unemployment and prices fall so businesses fail to survive
What is recovery?
when businesses and consumers confidence recovers.
What happens in recovery?
spending on goods begin to rise, employment and firms increase, sales and profits rise and new businesses are formed
What is inflation?
the increase in the average price level of goods and services overtime
What is unemployment?
when people willing and able to work cannot find a job
What is economic growth?
when a country’s gdp increases, more goods and services are produced than the previous year.
What are balance of payments?
records the difference between a country’s exports and imports
How does changes in employment impact businesses?
it affects the ability of businesses to recruit new employees, and incomes of customers decrease so they wont be able to buy many products
How does inflation affect businesses?
business costs increase so they have to higher their pricing, however consumers have less income to purchase non-essential products
What does increasing GDP affect businesses?
it means the economy is growing, so businesses will benefit from increasing sales as more people have income to spend.
What are the government economic objectives?
low inflation, low unemployment, economic growth and balance of payments
What is fiscal policy?
any change by the government in tax rates or public sector spending
What is public expenditure?
government spending on public services
What does fiscal policy do?
lowering taxes of increasing public sector spending decreases unemployment
What does public expenditure do?
helps grow economy and decrease unemployment rates
What are the direct benefits from public spending?
construction firms benefit from contracts to build, small businesses benefit from grants by the government, jobs in public sector become avaliable
What are the effects of decreasing unemployment?
as peoples incomes increase they gain more disposable income which they can use for personal spending
What is disposable income?
money left over from your salary
What is the impact of low income tax?
increases customer spending, cheaper supplies, and can charge lower prices
What are taxes?
tool used by the government to generate revenue
What are the impacts of low indirect taxes to businesses?
goods and services cheaper, increase demand for products, more revenue profit made by the business
What do low taxes lead to?
faster business expansion, leading to more jobs, faster innovation via research and development
What are direct taxes?
taxes paid directly from incomes
What are indirect taxes?
added to the prices of goods, and tax payers pay the tax and they purchase the goods (eg. VAT)
What is VAT?
value added tax
What is the income tax flowchart?
- increase rate of tax
- individual tax payers have less disposable income
- less money to spend
- businesses see falling sales
- businesses produce fewer goods
- unemployment
What is monetary policy?
change in interest rates by the government/central bank
What are interest rates?
the cost of borrowing money, fixed by governments via monetary policy.
