2E

Question 1

What is Inflation

Answer 1

An increase in the average price level in an economy

Question 2

Low inflation=

Answer 2

Prices rise slowly, demand for goods/services may increase-consumers may have more money to spend.

Question 3

What is deflation

Answer 3

Prices go down, negative inflation

Question 4

Disinflation

Answer 4

Falling rate of inflation

Question 5

positive effects on business of inflation

Answer 5

Consumers’ money increases, demand for goods increases, higher profit margins

Question 6

Negative effects on business of inflation

Answer 6

wage prices spiral-labour demanding higher wages. Loss of confidence, value of money decreases, less demand, lower profit margins.

Can lead to increased unemployment

Question 7

CB for effects of inflation

Answer 7

Depending on PED, if demands elastic- increased price will lead to a more proportional fall in demand, if demand inelastic will be little demand.

Question 8

Positives of a recession

Answer 8

Cheaper labour, lower inflation, demand for inferior goods increased.

Question 9

Negatives of a recession

Answer 9

lower investment, low consumer confidence, lower demand for luxury goods, increased risk of business failuer.

Question 10

What is the exchange rate

Answer 10

The value of a currency in terms of another

Question 11

For a business that imports what are the effects of a stronger pound and a weaker pound

Answer 11

Stronger pound- lower business costs- lower cost of raw materials- lower profit margins
Weaker pound-Higher business costs-increased raw material costs, lower profit margins.

Question 12

For a business that exports What are effects of a stronger pound and weaker pound

Answer 12

Stronger pound-higher business costs, higher costs for raw materials, lower profit.
Weaker pound-lower business costs, lower costs of raw materials, higher profit margins.

Question 13

CB points for effects of x change rate

Answer 13

Depends on size of appreciation/dep
PED of product.

Question 14

What are interest rates

Answer 14

cost of borrowing and the reward for saving.

Question 15

Increased IR effects

Answer 15

-Higher incentive to save- lower disposable income- lower demand.
-Lower investment, due to higher save.
-Higher availability of credit- banks reward increase, so they make more options to borrow.
-higher cost of borrowing therefore lower business growth.
-Increased IR lead to appreciating exchange rate.

Question 16

Decreased IR effects

Answer 16

Lower incentive to save-= higher disposable income- higher demand for goods.
-Higher investment
-Lower credit- banks give less options to borrow as reward has decreased.
-lower costs borrowing, higher business growth.
-decreased IR- depreciating exchange rate.

Question 17

CB for effects of IR

Answer 17

Depends on size of change, depends if loans are fixed or variable, depends on consumer confidence, depends the proportion of income the prodcut is.

Question 18

What is corporation tax

Answer 18

Tax on business proftis

Question 19

What is VAT

Answer 19

Tax on goods and services.

Question 20

Increased C tax effects, negatives

Answer 20

-lower profit margins
-lower investment
-Lower business growth
-Lower r and d spending

Question 21

Positive effects of increased C tax

Answer 21

Increased gov budget
increased gov spending- education up
increased subsidies for business

Question 22

Higher-income tax effects

Answer 22

decreased motivation, lower productivity, less disposable income, lower demand for goods, lower cc

Question 23

Higher VAT effects

Answer 23

Lower demand for goods and services

Question 24

What is legislation

Answer 24

Involves creating and enacting laws in order to protect individuals, firms and society as a whole.

Question 25

What are consumer protection laws

Answer 25

Law’s that protect the consumer from firms with regards to the quality of goods and services sold.

Question 26

What is employee protection

Answer 26

Safeguarding employee rights in the workplace. e.g equal pay act.

Question 27

What are environmental protection laws

Answer 27

Laws help ensure that firms do not have a negative impact on the environment.

Question 28

What is competition policy

Answer 28

A monopoly exists when a company has at least 25% of market share. Market power allows business to price above. Monopolies are regulated in order to protect the customer and achieve fair competition.

Question 29

What is an oligopoly

Answer 29

Market dominated by few firms. e.g supermarket

Question 30

What are health and safety

Answer 30

Law’s to look after employee health and safety in workplace. Maintain high standards and stop illness and injury