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business component three > economic > Flashcards

economic Flashcards

1
Q

what is gross domestic product (GDP)?

A

total value of a country’s output in a year

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2
Q

what does real GDP take into account?

A

inflation i.e., if GDP growth is 5% and inflation 2%, real GDP growth will be 3%

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3
Q

what is the business/trade cycle?

A 
the regular pattern of variation in demand and output within an economy. 
four main phases:
slump
recession
recovery
boom
(can include growth trend)
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4
Q

what is a ‘boom’?

A
  • very strong economic growth
  • firms are investing heavily
  • unemployment levels low
  • risk of overheating economy
  • inflationary pressures build
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5
Q

how does an economic boom impact businesses?

A

shortage of skilled staff
higher labour costs
firms operate near full capacity

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6
Q

what is a recession?

A

two successive quarters of negative economic growth

  • Bank of England likely to raise interest rates
  • borrowing more limited
  • firms will seek to cut costs
  • i.e., 2008 recession
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7
Q

how does a recession impact businesses?

A

price-sensitive consumers
job security fears
business failures

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8
Q

what is a ‘slump’?

A 
period of prolonged economic decline
-high levels of unemployment 
-negative GDP 
-low business and consumer confidence 
(effects more profound than recession)
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9
Q

how do businesses react to a recession?

A

find new markets
reduce selling prices
cut costs

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10
Q

what is recovery?

A

first signs of economic growth

  • growth is uncertain at this stage
  • ‘green shoots of recovery’
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11
Q

how does a recovery impact business?

A

rising levels of employment
increase in capacity utilisation
gradual increase in investment

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12
Q

what is economic growth?

A

increase in the level of economic activity or real GDP.

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13
Q

what is economic growth for the UK?

A

an important macro-economic objective of government, helping increase living standards, improve tax revenue and help create new jobs
-UK’s average rate of real GDP growth has exceeded 2.2% per annum but slowed down in growth since 2008.

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14
Q

how does economic growth impact an organisation?

A
  • costs
  • sales
  • profit
  • growth strategies
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15
Q

how to improve economic growth?

A 
staff training
lower taxes = encouraged consumer spending
increased government spending 
improved capital investment
spending on R+D
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16
Q

what are interest rates?

A

financial reward for lending of money or financial cost of borrowing money
(measures opportunity costs)
-reflects price of money
-increase causes demand for money to rise

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17
Q

what happens to a personal disposable income if interest rates rise?

A

it will decline, therefore they will spend less on goods and services

  • increased tendency for saving
  • consumer durable market impacted
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18
Q

what happens with falling interest rates?

A 
rising incomes
increased spending
higher investment
lower unemployment
depreciation of £ value
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19
Q

what happens with rising interest rates?

A 
falling incomes
decreased spending
lower investment
higher unemployment
appreciation of the £'s value
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20
Q

how do interest rates affect an organisation?

A 
costs
sales
profit
growth stratgies
objectives
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21
Q

what happens with increasing interest rates?

A

people are less likely to borrow
value of £ may increase
people spend more on paying mortgages

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22
Q

what happens with decreasing interest rates?

A

people spend less on mortgages
-people more likely to borrow
value of £ may fall

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23
Q

what are exchange rates?

A

price of one country’s currency in terms of another

  • appreciation = £ rising
  • depreciation = £ falling
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24
Q

what do exchange rates impact?

A

price of imports and exports

25
Q

what does SPICED stand for?

A

strong pound: imports cheaper, exports dearer

may see less demand

26
Q

what does WPIDEC stand for?

A

weak pound: imports dearer, exports cheaper

greater demand from abroad for UK goods

27
Q

what impacts the competitiveness of businesses (exchange rates)?

A

fluctuations in exchange rates

28
Q

how will a fall in the value of the £ impact importers?

A

more expensive to buy

  • can reduce margins to avoid passing the increased cost of customer
  • pass increased costs onto consumer w/ higher price
29
Q

how will a fall in the value of the £ impact exporters?

A

cheaper exports, attracting export markets

  • increasing price to maximise profits
  • keep price to win new customers
30
Q

how will a rise in the value of the £ affect importers?

A

imports less expensive

  • increase margins by not passing reduced cost on to consumer
  • reduced costs to increase sales
31
Q

how will a rise in the value of the £ affect exporters?

A

more expensive to purchase in other countries

-harder to keep export deals

32
Q

what are inflation rates?

A

the general tendency for prices to rise

  • increase in cost of living
  • add’s to firm costs
33
Q

what is the current target of inflation?

A

2%

34
Q

what is the consumer price index?

A

tool of measurement looking at prices spent on hundreds of items i.e., food and cinema tickets

35
Q

what is retail price index?

A

similar to CPI, but includes housing costs

36
Q

what is the main measurement of inflation?

A

consumer price index

37
Q

what are the two main types of inflation?

A

cost-push inflation

demand-pull inflation

38
Q

what is demand-pull inflation?

A

occurs when there is too high a level of demand within the economy.
-raise prices to ration until max capacity

39
Q

what is cost-push inflation?

A

when costs involved in production of goods and services rise, additional cost is passed onto consumers through higher prices

40
Q

what is the MPC?

A

monetary policy committee

41
Q

what do the MPC do?

A

use interest rates to suppress or stimulate economic growth

-look ahead 18 months

42
Q

how do the government respond to inflation?

A 
cap public sector pay rises
raise tax to cut demand
cut govenrment spending
encourage greater competition in markets
limit supply of pounds to raise value
43
Q

what is deflation?

A

general tendencies for price levels of goods and services to fall over a period of time

  • consumers may save their money
  • firms see fall in demand
  • decline in economic growth
44
Q

How does inflation impact businesses?

A

increased costs due to higher inflation

  • can be passed onto consumer if price is inelastic
  • will have to try and absorb increased costs through lower profit margins
45
Q

what are unemployment rates?

A

number of jobless people who are available and actively seeking work

46
Q

who does unemployment negatively affect?

A

government
local communities
businesses
wider society

47
Q

what is the criteria for the international labour force survey?

A

anyone without a job, want a job, have actively sought a job in the last four weeks and are able to start work
out of work, have found a job and are waiting to start in the next two weeks

48
Q

what is a benefit of the ILO Labour Force Survey?

A

provides a mean of comparing UK unemployment rates with other nations

49
Q

what is a disadvantage of the ILO Labour Force Survey?

A

subject to sampling errors
not truly representative
hard to decide whether somebody is sick or actively seeking work

50
Q

what is a claimant court?

A

calculates unemployment by measuring the number of people receiving benefits

  • modified numerous times
  • suppresses number of eligible people
51
Q

what are the four types of unemployment?

A

structural
frictional
seasonal
cyclical

52
Q

what is frictional unemployment?

A

when people are in between jobs

  • quick to start new roles
  • government seek to reduce levels by providing more info. to employees about relevant vacancies
53
Q

what is structural employment?

A

the collapse of an entire industry bringing the loss of thousands of jobs

  • politically and economically sensitive
    i. e., staff training, grants to regenerate areas, grants to businesses to relocate
54
Q

what is cyclical unemployment?

A

linked to different phases of the business cycle

-recession/slump brings about unemployment

55
Q

what is seasonal unemployment?

A

mainly applies to workers in the tourist and agricultural industries
demand for labour high during peak season

56
Q

how does unemployment impact the government?

A
  • large number of claimants for benefits
  • government use tax revenues to pay benefits
  • less money available for other uses
  • social problems in areas with recurring unemployment
  • tax revenue spent trying to attract businesses to areas of high unemployment
57
Q

how does unemployment affect socially deprived areas?

A

leads to problems with drugs, alcohol abuse, petty crime, burglary and benefit fraud
-schooling less effective, pupils have escape from poverty trap.

58
Q

how does unemployment impact an organisation?

A

less disposable income = less demand leading to cut costs or new markets
-costs such as redundancy payments

59
Q

how does the economic environment impact an organisation?

A 
cost of production
price elasticity of demand
sales/profits
market share
competitiveness

business component three (7 decks)

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