Economic factors affecting businesses

Question 1

what is GDP?

Answer 1

• informs us about the health of economy

Question 2

what does GDP measure?

Answer 2

• total value of all goods and services produced in the economy

Question 3

how does decreasing GDP affect economic growth?

Answer 3

• value of goods and services produced declines
• economic growth is negative

Question 4

how does increasing GDP affect economic growth?

Answer 4

• more goods and services are being produced
• economy grows in size

Question 5

how does GDP link to recession?

Answer 5

• if GDP decreases for two consecutive quarters of a year, economy enters a recession

Question 6

what does GDP stand for?

Answer 6

• gross domestic product

Question 7

how might higher GDP affect business decisions?

Answer 7

• increase output
• consider expansion
• increase prices

Question 8

how might lower GDP affect business decisions?

Answer 8

• decrease prices
• produce less output
• consider downsizing

Question 9

what is taxation?

Answer 9

• payment made by an individual or a firm to the government

Question 10

why does the government collect taxes?

Answer 10

• so that they can provide essential services that a country needs

Question 11

what are some examples of direct taxes?

Answer 11

• income taxes
• corporation taxes

Question 12

what is an example of an indirect tax?

Answer 12

• VAT (20%)

Question 13

how might high taxation levels positively affect business decisions?

Answer 13

• businesses selling inferior goods may get more demand
• have a negative income elasticity of demand
• ie. Poundland

Question 14

how might low taxation levels negatively affect business decisions?

Answer 14

• less support for small businesses and start ups
• ie. grants or loans
• if public services (like healthcare or transportation) are affected productivity and wellbeing of employees could decrease

Question 15

what do exchange rates measure?

Answer 15

• value of each currency against other currencies

Question 16

what is an example of an exchange rate?

Answer 16

• £1 to $1.26

Question 17

which businesses does changes in exchange rates affect?

Answer 17

• businesses who are trading with other businesses or consumers in other countries

Question 18

how does changes in exchange rates influence business decisions?

Answer 18

• if the currency is strong, it is cheaper to import, and more expensive to export
• could lead to more imports of raw materials
• if the currency is weak, imports are more expensive and exports are cheaper
• sell more overseas
• change target market

Question 19

what rule should be followed when discussing exchange rates?

Answer 19

• never base strategy on exchange rates as they are long term
• exchange rates are dynamic and constantly changing
• it is possible to base tactics on exchange rates as they are short term

Question 20

what is globalisation?

Answer 20

• when the world becomes more integrated
• much less separate

Question 21

why has globalisation grown?

Answer 21

• barriers to trade breaking down
• transport advances
• growth of the internet and technology

Question 22

what positive impact has globalisation had on businesses?

Answer 22

• more options to choose from staff
• possible expansion
• more opportunities for trade (open new markets)

Question 23

what negative impact has globalisation had on businesses?

Answer 23

• more competition

Question 24

what is inflation?

Answer 24

• when the average price of all goods and services bought and sold in an economy is increasing

Question 25

what is an example of inflation?

Answer 25

- cost of living crisis

Question 26

how would higher than expected inflation affect business decisions?

Answer 26

- increases prices - leads to even further inflation - increase in costs (ie. labour costs as there would be an increase in minimum wage) - undermines business confidence - delay investment decisions as there is increased risk

Question 27

what is the target annual inflation?

Answer 27

2%

Question 28

what is fiscal policy?

Answer 28

- government spending in economy - taxation

Question 29

how might fiscal policy positively affect business decisions?

Answer 29

- lower taxation to boost economy would lower costs so could lower prices

Question 30

how might fiscal policy negatively affect business decisions?

Answer 30

- higher taxation to decrease economic growth will increase costs and lead to increased prices

Question 31

what is monetary policy?

Answer 31

- government indirectly controls the amount of money that there is in an economy - through Bank of England

Question 32

how might monetary policy positively affect business decisions?

Answer 32

- lower interest making it cheaper to borrow - more expansion

Question 33

how might monetary policy negatively affect business decisions?

Answer 33

- higher interest making it more expensive to borrow - reduce expansion plans

Question 34

what is free trade?

Answer 34

- fewer restrictions placed on imports and exports

Question 35

what are the benefits of free trade?

Answer 35

- more opportunities for trade - increases choice - reduces costs

Question 36

what is the drawback of free trade on businesses?

Answer 36

- more competition

Question 37

what are three examples of protectionist policies?

Answer 37

- tariffs - quotas - technical specifications (like extra rules)

Question 38

what are tariffs?

Answer 38

- tax making imports more expensive

Question 39

what are quotas?

Answer 39

- physical limit on the volume of imports for a particular product

Question 40

what is protectionism?

Answer 40

- government takes measures to protect domestic goods and services produced in their country - due to too many imports

Question 41

what is one key advantage being apart of the EU brought to UK businesses?

Answer 41

- single market - no tariffs/ quotas/ export restrictions