Chapter 6.1 Flashcards
(20 cards)
What is GDP (Gross Domestic Product)?
The value of goods and services produced by a country each year.
How does an increase in GDP affect businesses?
Higher GDP means more goods and services are produced, leading to higher sales, revenues, and profits for businesses.
What is inflation?
The increase in the price of goods and services over time.
How does inflation affect businesses?
Inflation leads to higher costs for raw materials and labor, causing businesses to raise prices and potentially reduce demand.
What is unemployment?
The percentage of the population that is able to work but unable to find a job.
How does unemployment affect businesses?
High unemployment reduces consumer spending, leading to less demand for goods and services, which affects business revenues and profits.
What happens during the growth phase of the business cycle?
GDP rises, unemployment falls, demand increases, and businesses experience higher sales, revenues, and profits.
What happens during the boom phase of the business cycle?
High demand and rapid inflation lead to low unemployment, but businesses face rising costs, which may lead to higher prices and reduced profit margins.
What happens during the recession phase of the business cycle?
GDP declines, unemployment rises, and businesses see reduced demand, lower revenues, and lower profits.
What happens during the slump phase of the business cycle?
Very low economic activity, sustained low GDP, and high unemployment. Many businesses close down, and demand is at an all-time low.
What is the government’s economic objective regarding inflation?
The government aims for low and stable inflation to avoid rapid price increases, which destabilize the economy and reduce business profits.
How does high unemployment affect businesses?
High unemployment reduces consumer spending and lowers demand for goods and services, resulting in lower business revenues and profits.
How does increasing GDP benefit businesses?
Higher GDP leads to more business opportunities, higher demand, and greater revenue and profit for businesses.
What is fiscal policy?
Fiscal policy refers to the government’s use of taxation and spending to influence the economy.
How does government spending benefit businesses?
Government spending on infrastructure, education, and public services creates jobs and boosts demand for goods and services, benefiting businesses.
How does government taxation affect businesses?
High taxes reduce consumer spending, leading to lower demand for goods and services, and can reduce business profitability.
What is the impact of high interest rates on businesses?
High interest rates increase the cost of borrowing, making it harder for businesses to expand or invest. This can reduce sales, revenue, and profit.
: How can businesses respond to high interest rates?
Businesses may delay expansion plans, sell assets to reduce debt, or lower prices to stimulate demand.
What is monetary policy?
Monetary policy refers to the management of interest rates and money supply to control inflation and stabilize the economy.
How do high taxes impact consumer spending?
High taxes reduce disposable income, leading to less spending and lower demand for goods and services, affecting business profits.
