Government Economic Objectives
Identify four main government objectives.
Low inflation, low unemployment, economic growth, balance of payments
How is unemployment affected by the occurrence of a recession?
Unemployment will rise
Define fiscal policy and name any four types of taxes.
Fiscal policy is the change in tax rates or government spending which is done in order to influence demand.
Income tax, profits tax, corporation tax, VAT, GST, and import tariffs.
Define monetary policy.
Monetary policy is a change in interest rates by the government or central bank.
Define supply-side policies.
Supply-side policies try to increase the competitiveness of industries in an economy against those from other countries. Policies to make the economy more efficient.
Define unemployment and explain why it is a disadvantage to a country.
Unemployment is when people that are willing and able to work cannot find a job.
It restricts a country from operating and producing at maximum capacity. High amounts of government revenue will have to be spent on unemployment benefits.
Why is unemployment helpful to business?
It is easier to recruit employees and keep wages low for employees as they are easily replaceable. Businesses that produce cheap products will face rising demand.
State 3 programmes that the government is likely to spend its revenue on.
Education, health, defence, law and order, transport and infrastructure.
State why a rise in interest rates discourages consumption.
High interest might turn consumers against taking loans for buying houses or cars. This reduces demand for those products.
Define privatisation and state why it is a supply-side policy.
Privatisation is the transferring of a company from the public sector to the private sector. It is a supply-side policy because it provides an incentive to improve efficiency.
Define inflation and explain why governments would want to avoid it.
Inflation is the rise in the average price level of goods and services over time.
It causes a worker's real income to fall. This might result in pressure on firms to increase prices and falling demand. Imports would exceed exports and pressure domestic firms, which might not survive. Business expansion will also be avoided and potential jobs would not be made. Standards of living would fall.
How does inflation harm a business that produces non-essential products?
Inflation results in high business costs, resulting in high prices. This lowers demand as a large portion of a worker's income would now be spent on needs rather than wants.
How would an increase in the rate of profit tax harm businesses?
There would be fewer available retained profits, and business expansion would be delayed.
Shareholders wouldn't receive as many dividends as earlier and might choose to invest elsewhere.
Explain how a rise in interest rates would harm exporting and domestic firms.
A higher interest rate would cause exchange rate appreciation. This makes exports costlier to foreign countries. It also makes imports cheaper and reduces demand for domestically produced goods.
State any 3 supply-side policies.
Privatisation, Improving education and training, Increasing competition.
Define economic growth and explain why it is important.
Economic growth is when a country's GDP increases - more goods and services are produced than in the previous year.
Unemployment will fall as more jobs are needed. The average standard of living will therefore rise. Business expansion is likely to occur as there will be higher demand.
Explain the advantages and disadvantages of the 'growth' stage in a business cycle to a firm.
It results in higher output and therefore a growing economy. Due to this, sales are likely to rise and higher profits will be gained. Businesses can also easily expand and become more efficient due to more skilled workers.
Businesses might find it difficult to recruit more employees due to rising unemployment
Would import tariffs and quotas harm businesses or help them?
They might harm businesses that import raw materials as their costs would rise. They might also result in foreign countries increasing tariffs as retaliation and businesses exporting to those countries would lose sales.
Businesses will benefit if they compete against cheap imported goods since consumers would choose to buy their cheaper products instead.
Explain how a rise in interest rates delays business expansion and discourages entrepreneurs.
A rise in interest rates would mean that managers would have to pay higher interest on any loans taken and this would add to a business' costs. Therefore the managers might not take the loans.
Entrepreneurs would also have to pay higher interest on any loans taken for starting a business. There is no guarantee that the business will be able to pay off these loans and therefore the entrepreneurs might not take the risk of taking the loan.
Explain how a government could increase competition.
It could remove entry and exit barriers to any industry to allow more firms into and out of it. It could act against monopolies
Define a balance of payments and explain why a balance of payments deficit would want to be avoided.
A balance of payments records the difference between a country's exports and imports.
A balance of payments deficit would result in imports exceeding exports. Imports will have to be paid for with foreign currencies, and high imports might result in a business running out of these currencies. Exchange rate depreciation is likely to occur.
What is likely to have the most impact on a business, high inflation or high unemployment?
It depends on what the business sells. In both cases, businesses that produce cheap, essential goods will benefit. However, a luxury business is likely to shut down as both high inflation and high unemployment will reduce demand.
Unemployment might benefit a business instead, as it increases their supply of labour which might help reduce costs. This prevents inflation. Due to this high unemployment might be more impactful.
Inflation is likely to result in high unemployment, which will increase the problems faced by a company. Due to this inflation might be more impactful.
Explain briefly how an increase in both income tax and indirect taxes would affect companies producing non-essential goods.
Increased income tax would leave consumers with a lower disposable income, due to which consumption and therefore sales would fall. Employees would lose their jobs.
Increased indirect taxes would result in higher prices and once again sales would fall, especially for non-essential products. Workers' real incomes would fall, due to which businesses might be pressured into providing higher wages. This would increase costs and result in unemployment.
Explain how a rise in interest rates might result in exchange rate appreciation.
Foreign countries might choose to deposit their savings in a country with a high interest rate as they would earn more. Therefore, the demand for the currency would increase and the value of the currency would increase.
idk the part in the textbook for supply-side policies was really small.
free points for u