EXTERNAL INFLUENCES ON BUSINESS ACTIVITY

FLASHCARDS

Gross Domestic Product (GDP)

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

Recession

When there is a period of falling GDP

Inflation

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

Unemployment exists when the people who are willing and able to work cannot find a job

Economic growth

When a country's GDP increases- more goods and services

Balance of payments

Records the difference between a country's exports and imports

Real income

The value of income, and it falls when prices rise faster than money income

Exports

Goods and services sold from one country to another country

Imports

Goods and services bought by one country from other countries

Exchange rate

The price of one currency in terms of another

Exchange rate appreciation

The rise in the value of a currency compared with other currencies

Exchange rate depreciation

The fall in value of a currency compared with other currencies

Fiscal policy is any change by the government in tax rates or public sector spending

Direct taxes

Paid directly from incomes, eg, income tax or profits tax

Indirect taxes

Added to the prices of goods, and taxpayers pay the tax as they purchase the goods, eg-

Disposable income

The level of income a taxpayer has after paying income tax

Import tariff

Tax on an imported product

Monetary policy

Change in rates by the government or central bank

Supply-side policies

Aim to increase supply and make the economy more efficient

Private costs

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

Private benefits

The gains to a business or the consumer of the product

External costs

Costs paid for by the rest of society, other than the business, as a result of business activity

External benefits

The gains to the rest of society, other than the business, as a result of business activity

Social cost = external costs + private costs

Social benefit = external benefits + private benefits

Globalisation

Describes increases in worldwide trade and movement of people and capital between countries

Sustainable development

Refers to development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs

Free trade agreement

Exist when countries agree to trade imports/exports with no barriers, such as tariffs or quotas

Import tariff

A tax placed on imported goods when they arrive in the country

Import quota i

is 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 businesses

Businesses with factories, production or service operations in more than one country