Chapter 27

Question 1

What is GDP?

Answer 1

Total value of all of the output of goods and services in a country in a year

Question 2

What is GNP?

Answer 2

The total value of the output of goods and services by the residents of a country, despite their location of production.

Question 3

What are the 4 economic stages:

Answer 3

Growth, boom, recession, slump.

Question 4

What is growth?

Answer 4

GDP is rising, unemployment is falling, leading to improved living standards. Interest rates and inflation is low. More profits for business (more dividends and wages)

Question 5

What is boom?

Answer 5

This is caused by too much spending. Inflation is high, and thus business costs increase

Question 6

What is recession?

Answer 6

This is caused by too little spending. GDP falls and there is a decline in demand leading to less sales and profits that mere unemployment and redundancy.

Question 7

What is slump?

Answer 7

Serious recession. Unemployment is very high and businesses are unlikely to survive.

Question 8

What is the impact on businesses in changes in employment?

Answer 8

If there is high employments it is difficult for the business to recruit. If unemployment is high, businesses have a greater variety of workers to choose from to employ. If there is high unemployment, there is less income for consumers which may lead to reduced sales for one company, and increased sales for a cheaper company.

Question 9

What is the impact on businesses in rising inflation?

Answer 9

Due to increasing raw material tests, businesses have to increase their selling price to maintain profits which discourages the consumers purchase products.it also effects businesses due to the types of graceless (necessities and wants)

Question 10

What does increasing GDP impact businesses on?

Answer 10

More employment, economic growth, more output

Question 11

What are the economic objectives the of government?

Answer 11

Low inflation, low unemployment, economic growth, balance of payments.

Question 12

What does inflation mean?

Answer 12

An increase in the average price of goods and services

Question 13

What is unemployment?

Answer 13

When an individual who is able and willing to work cannot find a job.

Question 14

What is economic growth?

Answer 14

When a countries GDP increases with more goods being produced and thus sold

Question 15

What is balance of payments?

Answer 15

Difference between exports and imports of a country.

Question 16

Why de governments want low inflation? What does inflation impact?

Answer 16

Inflation leads to workers real wages falling due to real income (earning of individual after adjusting to the extent of inflation) decreasing that employees may demand higher wages which increases business costs, and price of goods may be higher in countries with inflation, so the same product may bought abroad which decreases national sales.

Question 17

Why do governments want low unemployment?

Answer 17

-Unemployment can lead to less income of individuals, thus they cant afford business goods leading to decrease in sales.
- unemployment can lead to less worker employed thus less output and a fall in GDP.

Question 18

Why de governments want economic growth?

Answer 18

• economic growth leads to an increase in GDP
• if there is lessGDP, less output meaning high unemployment leading to reduced living standards, and businesses can’t expand as people can’t afford

Question 19

What are exports?

Answer 19

Goods or services sold from one country to another.

Question 20

What are imports?

Answer 20

Goods and services bought by one country from another.

Question 21

Why is a high level of import bad?

Answer 21

This can lead to a negative balance of trade
- a country may runout of foreign currencies leading to borrowing from abroad which increases dependency, and exchange rates may depreciate, making there goods cheaper and international goods mere expensive.

Question 22

What is exchange rate appreciation and depreciation?

Answer 22

Exchange rate appreci at on is when the currency of a country increases in value as compared to other currencies.

Question 23

What are the government economic policies?

Answer 23

Fiscal policy, monetary policy, supply side policies

Question 24

What is fiscal policy?

Answer 24

Changes in laws by the government based on tax later and public sector spending.
The government invests in services to improve them as well as businesses in which the money obtained is from taxes.

Question 25

What are the 2 main types of taxes? Explain.

Answer 25

Direct: paid directly from incomes like profit tax or income tax. In direct: when there is an added tax on the price of goods,

Question 26

What is disposable income?

Answer 26

Amount of income remaining after paying income tax

Question 27

What are the advantages of income tax?

Answer 27

For those with less income, tax is less

Question 28

What are the disadvantages of income tax?

Answer 28

These with higher income pay more, and disposable Income is reduced which can lead to less sales, and thus unemployment as business costs need to be saved, and for the employees POV, a demand in higher wages which increases business costs. There will be less money for the business to reinvest and expand. HOW TO COMBAT: lower costs of production to sell at a lower price

Question 29

What is profits tax and its disadvantages:

Answer 29

Profits tax is deducted from the profits earned by a business. This can lead to less money being able to be reinvested back into the business, and there may not be enough profit to provide satisfactory dividends to the shareholders.

Question 30

What is VAT and its disadvantages?

Answer 30

This is added to the price of products bought, making them more expensive. This discourages consumers from buying goods from a certain company (however cheaper ones may strive if they have lower prices or there may be a price inelastic demand meaning products are still bought despite increase in price). Employees may feel that their wages buys them less so they may demand an increase in wages which increases business costs

Question 31

What is an import tariff?

Answer 31

Import tariff is a tax on an imported product

Question 32

What is an import quota?

Answer 32

Import quota is a restriction on the amount of goods that can be imported

Question 33

How can businesses be affected my import tariffs?

Answer 33

Due to increased raw material costs, cost of production will be higher leading to a higher selling price which can reduce sales

Question 34

What is an interest rate?

Answer 34

The amount that is charged for borrowing money from a bank

Question 35

What is monetary policy?

Answer 35

Monetary policy refers to the percent of interest rate. It is the change in interest rates by the government or central banks.

Question 36

How does high interest rate affect a business?

Answer 36

Businesses who have pending loans to pay will now need to pay more than they needed to due to increased interest rates, which means their profits decrease. Managers who want a loan to expand the business may delay this idea. Consumer loans will also increase leading to their disposable income reducing leading to lower standard of living and less demand of products that can lead to business failure. HOW TO COMBAT: Reduce investments a business needs and find other sources of finance for expansion, without interest, or lower the price of goods so customers can afford.

Question 37

What are supply side policies?

Answer 37

This tries to increase competitiveness of industries in an economy against those of other countries

Question 38

What are some supply side policies?

Answer 38

Privatization, improve training, machinery, reducing government controls over industries.