Government And Economy

Question 1

How does government spending influence the economy

Answer 1

Government spending could increase or decrease in setting departments:

1. Changing on welfare benifits has a quick impact on the economy because these people will either get more or less money. This can change the demand of products
2. Infrastructure- this can increase supply routes so they can get raw materials quicker and cheaper. Improve roads and this can imrpove customer demand

Question 2

How does taxation rates impact the economic activity

Answer 2

Income tax, taxes people on their income. Less income = less sales = less turnover.

Businesses can be taxes on profits = high tax rates means profits after tax will be reduced.

Reducing tax can lead to the encouragement of expansion

Question 3

Draw a business cycle diagram

Answer 3

Look in book

Question 4

What are the parts of a business cycle diagram

Answer 4

Boom - GDP is high production researches a max and there are shortages of skilled labour and price increasing
Recession - incomes start to go down and demand goes down
Slump - GDP is low, businesses may shut down factories and there will be lots of redundancies, unemployment is high. Many businesses go bankrupt
Recovery - production increases and employment increases

Question 5

How does changes in the business cycle affect the business

Answer 5

During boom = increase prices, which increases profitability and slows down demand

Recessions = redundant workers, which will save wages cost to help improve capacity utilisation

Question 6

What’s a micro economy

Answer 6

A part of the economy that consists of only the individual consumers and the firms that make up a specific market.

Question 7

Whats a macro economy

Answer 7

The economy as a whole and this includes all consumers and markets

Question 8

Whats a microeconomic uncertainties

Answer 8

New competitor can lead to the uncertainties of consumers that the original business will have in the furture

Shortage in raw materials can lead to the uncertainties of changes of price in raw materials.

Question 9

Whats a macroeconomic uncertainties

Answer 9

Change in the government may lead to uncertainties over the availability of government spending in the future.

The decision of a country to leave a trade agreement with another country could lead to the uncertainties over future exchange rates.