Economic Issues IGCSE (Business Studies)

Chapter 27 – Economic issues
This chapter contains

1. The wider economy and how it can affect the business.
2. The main stages of the business cycle. The main stages are Growth,
Boom, Recession and Slump.
3. Impacts on business of changes in employment levels, inflation and
GDP, the impacts are …
- Changes in employment levels which will affect the liability of the business to
recruit new employees and also the incomes of customers.
- Rising inflation may result in business cost increasing, which may increase
business cost and may lead to fail in sales.
- Increasing GDP means that the economy is growing. Generally, Businesses will
benefit from increase in sales, more employment, means more purchasing
power, thus more sales.
4. Government economic objectives and it’s problems: -

- low inflation, the problems are: -
~ Real incomes will fall as workers’ wages can’t buy as many goods as before.
~ Prices of the goods in the country will be higher than those in other countries.
~ Business will unlikely to expand thus it won’t create more jobs and then the
living standards are likely to fall.
- low unemployment: - Problems…
~ Unemployed people don’t produce any goods or service. the total level of
output in the country will be lower than it could be.
~ The government pays unemployment benefit to those without jobs. A High
level of unemployment will cost the government a great deal of money, this
cannot be spent on other things such as schools and hospitals.
So low unemployment will increase output and living standards.

- economic growth: - Failing GDP’s problems…
~ As output is failing, fewer workers are needed and unemployment will occur.
~ The average living standard of the population will decrease.
~ Business owners won’t expand their business.
- balance of payment between imports and exports: - Problems…
~ The country can run out of foreign currencies and it may have to borrow from
abroad.
~ The exchange rate will likely to fall.
5. Revision summery –
ECONOMIC OBJECTIVES OF GOVERNMENT – Low inflation, Low
unemployment, Balance of payments (Long term balance between
exports and imports), Economic growth to raise living standards.
6. Government economic policies - measures by which a government
attempts to influence the economy. The national budget generally reflects the
economic policy of a government, three economic policies are…
~ Fiscal policy – in any change by the government in tax rates or the public
sector. And it contains Import tax, Profit tax, Indirect taxes, Import tariffs and
quotas.
~ Monetary policy – Change in interest rates. And problems of higher rates
are….
>> Firms with existing variable interest loans may have to pay more in interest
to the banks. This will reduce their profits, and less profits discourage owners to
expand their business.
>> Manager’s decision of expanding the business may delay their decisions, new
investments on business activity will be reduced, and entrepreneurs may not
able to afford to borrow the capital needed, thus fewer factories and offices will
be built. Loans will charge high interest which will reduce income for the person
who will take loan, which can lead fall in demand and service in an economy as
consumers will have less money to spend.
>> Higher rates will encourage foreign banks and individuals to deposit the
capital in that country, and by switching their currency into this country’s
currency, which will cause increasing demand for this country’s currency,
exchange rate will rise and it will make imports cheaper and exports expensive.
and this is called exchange rate appreciation. If opposite happens then it is
called exchange rate depreciation.
~ Supply side policy - Supply-side policies are government attempts to increase
productivity and increase efficiency in the economy. it also increases
competitiveness of the business within a country.
>> Privatisation – it is now very common. The aim is to use the profit motive to
improve business efficiency.
>> Improve training and education – it increases skills of the country’s workers,
such as computer software which are often very short of skilled staff.
>> Increase competition in all industries – this may be done by reducing
government controls over industry or by acting against monopolies.
7. Changes in government spending

- When government wants to boost their economy they can spend on the
programs like education, health care, economy, crime and more, which will
create more jobs and demands in the economy which will cause GDP to
increase.
8. How business might react to changes in economic policy.
- increase in income tax
~ Business can lower prices to increase demand or produce cheaper products for
lower prices, but less profit will be made or it can damage the company’s brand
image for selling lower quality products.
- increase tariffs on import
~ Business may now focus on domestic market as they will now be seeming
cheaper, and business will switch to local products instead of foreign products.
But it still might be more profitable to export and foreign goods or services
might be of higher quality.
- increase interest rates
~ Reduce investments and save capital to invest when it gets lower, develop
Cheaper product which will be affordable for consumers and also sell assets for
Cash to reduce existing loans. But the problems are other companies might
grow, depends on product but it still may reduce brand image, and also assets
be needed for the future expansion.
- increase government spending
~ Switching marketing strategy to gain more public sector contracts, and may be
great competition if other business takes same action.

Economic Issues IGCSE (Business Studies)

Uploaded by

Copyright:

Available Formats

Economic Issues IGCSE (Business Studies)

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Economic Issues IGCSE (Business Studies)

Uploaded by

Copyright:

Available Formats

Chapter 27 – Economic issues

This chapter contains

4. Government economic objectives and it’s problems: -

So low unemployment will increase output and living standards.

7. Changes in government spending

You might also like