A
State the 4 stages of business cycle
Recession, slump, growth, boom
State 4 economic objectives of a government
healthy balance of payments, low unemployment, low inflation, economic growth
Define gross domestic product
the value of all goods and services produced by a country in a year
What is disposable income?
the amount of income left for individuals after taxes have been paid
Give an example of indirect taxes
VAT, import tariffs/custom duty, sales tax, duty
State two key characteristics of growth stage
a positive outlook for new businesses, existing businesses grow and make profits, a rise in GDP until it reaches a maximum, falling unemployment, raised standards of living
State two key characteristics of boom stage
business investments and profits are at their highest levels, high levels of demand for goods and services causing prices to rise (inflation), very low unemployment -> increased wage costs, shortage of skilled people
State two key characteristics of recession stage
business confidence falls -> less investment in new and existing businesses, decline in economic activity until it reaches a minimum, falling demand by consumers leads to falling profits, unemployment rises as businesses have to cut costs
State two key characteristics of slump stage
very low business confidence with very little investment in new and existing businesses, low production of goods and services, low demand for goods and services, high unemployment due to low business activity
Why does the government not want the economy to grow too fast?
Why does the government not want the economy to grow too slow?
too fast = if the growth is too fast, it may not be long-lasting as the infrastructure to support this growth may not exist
too slow = will increase unemployment levels as there will be fewer jobs
State three examples of government spending
public services, subsidies on goods and services and welfare benefits
Explain why the government want to avoid a deficit in the balance of payments
Shortage of foreign exchange = may have to borrow foreign currency from other countries at expensive rates of interest, affect the exchange rate of a country
Explain why the government want to maintain a low inflation
Low inflation = people can afford to pay for goods and services, including non-essential items = better standard of living
Low inflation = easier for companies to set up new ventures and expand
If inflation increases = people may not be able to afford to buy local goods = buy cheaper foreign goods = local businesses receive fewer sales
State three reasons why the government wants a low unemployment
people can earn money and have a better standard of living, the government does not have to spend money on unemployment benefits, high employment = more income tax, high employment = contribute to the total output of the country and improve economic growth
Free 300 points
You are lucky!
Explain the effects of an increase in interest rates in the long term on the economy
reduced business activity leading to slow economic growth, high rate of return from savings will encourage individuals and financial institutions from other countries to invest their money with the banks in that country -> lead to exchange rate appreciation
Explain the effects of an increase in corporation tax rates (effect on shareholders, effect on business, and how it should respond)
Shareholders will receive fewer dividends
effect on business: a smaller amount is available to reinvest and grow, which discourages existing and new shareholders from investing
business response: may relocate their operations in a foreign country with a lower corporation tax rate, may increase prices to meet costs, may have to look at other ways of obtaining funds
Do you think all businesses benefit from an increase in government spending? Explain your answer.
Increase in demand/sales [k] leading to higher revenue [an]
Can create jobs [k] so able to maintain/increase output [an] but may be difficult for some businesses to recruit skilled workers [an]
May have to pay higher taxes (to pay for spending) [k] which increases costs [an] which could delay investment [an]
Obtain grants/subsidies [k] generating additional funds for the business to spend [an]
Can encourage business start-ups [k] increasing competition [an]
Do you think a reduction in the level of unemployment always benefits businesses? Explain your answer.
Increase in sales [k] could lead to higher revenue [an]
Difficult to recruit workers [k] which may lead to an increase in recruitment costs / difficult to increase output / meet orders [an]
Higher wages may need to be paid [k] increasing labour costs [an]
Available workers may lack necessary skills [k] leading to lower productivity / higher training costs / lower quality [an]
Do you think an increase in import tariffs in a country will be helpful to all businesses? Explain your answer
*answer*