Unit 6 - External Influences on Business Issues

Gross Domestic Product (GDP)

The total value of output of goods and services in a country in one year.

Recession

A period of falling GDP.

Inflation

The increase in the average price level of goods and services over time.

Unemployment

This exists when people who are willing and able to work cannot find a job.

Economic Growth

When a country's GDP increases - more goods and services are produced than in the previous year.

Balance of Payments

This records the difference between a country's exports and imports.

Real Income

The value of income - it falls when prices rise faster than money income.

Exports

Goods and services sold from one country to other countries.

Imports

Goods and services bought in by one country from other countries.

Exchange Rate

The price of one currency in terms of another, for example, $1 = 23 000 VND

Exchange Rate Depreciation

The fall in the value of a currency compared with other currencies.

Fiscal Policy

Any change by the government in tax rates or public sector spending.

Direct Taxes

These are paid directly from incomes, for example, income tax or profits tax.

Indirect Taxes

These are added to the prices of goods and taxpayers pay the tax as they purchase the goods, for example, VAT.

Disposable Income

The level of income a taxpayer has after paying income tax.

Import Tariff

A tax on an imported product.

Import Quota

A physical limit on the quantity of a product that can be imported.

Monetary Policy

A change in interest rates by the government or central bank, for example, the European Central Bank.

Exchange Rate Appreciation

A rise in the value of a currency compared with other currencies.

Supply Side Policies

Policies to increase the competitiveness of industries in an economy against those from other countries. Policies to make the economy more efficient.

Business Cycle

This is the regular patterns of upturns and downturns in demand and output within the economy that tend to repeat themselves every five years or so.

Slump

This is a period of low demand and investment, and high unemployment.

Recovery

This represents the part of the business cycle characterised by slowly rising levels of demand, investments, business confidence and falling levels of unemployment.

Boom

This is a period when the economy is growing rapidly due to consumers, businesses and investors spending and borrowing too much.

Interest Rates

This represents the cost of borrowing money.

Taxation

A compulsory financial charge or some other type of levy imposed by the government in order to fund government spending and various public expenditures

Government Spending

The amount of expenditure which governments undertake with the revenue which they obtain from taxes and other sources.

Quotas

A physical limit to the quantity of a product that can be imported.

Social Responsibility

When a business decision benefits stakeholders other than the shareholders, for example, a decision to protect the environment by reducing pollution by using the latest and 'greenest' production equipment.

Environment

The natural world including, for example pure air, clean water and undeveloped countryside.

Global Warming

A gradual increase in the overall temperature of the Earth's atmosphere generally thought to be caused by increased levels of carbon dioxide, CFCs and other pollutants in the atmosphere.

Pressure Group

A group made up of people who want to change business (or government) decisions by taking action, such as organising consumer boycotts. They act together to try to force businesses or governments to adopt certain policies.

Private Costs

The costs paid for by a business or consumer of the product.

Private Benefits

The gains to a business or the consumer of a product.

External Costs

Costs paid for by the rest of society (third parties), other than the business/consumers, as a result of business activity.

External Benefits

The gains to the rest of society (third parties). Other than the business/consumers , as a result of business activity.

Social Cost

Social cost = external cost + private costs.

Social Benefit

Social benefit = external benefits + private benefits.

Sustainable Development

Development that does not put at risk the living standards of future generations.

Consumer Boycott

When consumers decide not to buy products from businesses that do not act in a socially responsible way.

Ethical Decisions

Decisions based on moral code. Sometimes referred to as 'doing the right thing'.

Externality

Costs or benefits arising from the decisions of an individual or organisation which impact people other than the individuals or organisation.

Environmentally-friendly

Sustainability and marketing terms referring to goods, services and policies that claim reduced, minimal, or no harm upon the environment.

Sustainable

Development which does not put at risk the living standards of future generations.

Globalisation

The term now widely used to describe increases in worldwide trade and movement of people and capital between countries.

Free Trade Agreements

These exist when countries agree to trade imports/exports with no barriers such as tariffs and quotas.

Import Tariff

A tax placed on imported goods when they arrive into the country.

Import Quota

A restriction on the quantity of a product that can be imported.

Protectionism

When a government protects domestic businesses from foreign competition using tariffs and quotas.

Multinational Business

Business with factories, production or service operations in more than one country. These are sometimes known as transnational businesses.

Exchange Rate

The price of one currency in terms of another, for example, $1 = 23 000 VND

Currency Appreciation

This occurs when the value of a currency rises - it buys more of another currency than before.

Currency Depreciation

Thi occurs when the value of a currency falls - it buys less of another currency than before.

Importer

This a business or country who buys in goods from another country.

Exporter

This is a business or country which sells goods from their country to another country.

Currency

This is a medium of exchange used to pay for good and services, money, issued by a government for a specific country.

Floating exchange Rate

This is an exchange rate that is determined by the market conditions rather than being officially set.

Appreciates

When the value of one currency rises against another.

Depreciates

When the value of one currency falls against another.

Fixed Exchange Rate

An exchange rate that is officially controlled by the issuing country and not determined by the market conditions.