List for three reasons why businesses borrow money
- Start up costs
- Expansion
- Cover expensive until revenue comes up
Explain interest
An additional payment made up on borrowed money, it is also a reward for saving
Explain working capital [2]
- Refers to finance needed to cover production costs like rent, wages, and bills
- Running out of working capital could cause businesses serious problems
Explain monetary policy [2]
- The Bank of England is in charge of controlling inflation
- They can control inflation by adjusting interest rates
Explain inflation
Sustained increase in the general price level of goods and services over time
Explain the impact of low interest rates [2]
- Low interest rates should encourage businesses to invest, expand and create jobs
- Means homeowners with mortgages have lower monthly payments and more disposable income
HIGHER INTEREST RATES HAVE THE OPPOSITE EFFECT
List the impact of an increase in exchange rates [4]
- Higher demand for exports, so higher demand for currency
- Speculation; traders may bet that the exchange rate will rise
- Increase in interest rates make it more attractive to hold the currency
- Foreign direct investment into the country
List factors affecting significance of exchange rates on businesses [3]
- How much is exported to other economies
- Domestic businesses face strong competition from overseas firms in their markets
- How much a business relies on importing goods and services to operate
What does the SPICED acronym stand for?
S - Strong
P - Pound
I - Imports
C - Cheaper
E - Exports
D - Dearer
Explain inflation and interest rates [3]
- If data suggests that inflation is increasing, BoE may move interest rates upwards
- This then leads to borrowers having to pay more on borrowed money; so a reduction in spending
- This may then lead to businesses reducing prices to attract customers; should reduce inflation
Explain exchange rates
This is the price of one currency expressed in terms of another currency.
Explain currency
Currency is the system of money in general use in a particular country.
List four ways that exchange rates impact business activity [4]
- Price of exports in international markets
- Costs of goods brought from overseas
- Revenues and profits earned overseas
- Converting cash receipts from customers overseas
List four reasons why the government spends [4]
- Public sector provision
- Provide welfare support for the low income households/unemployed
- Used as a tool to manage aggregate demand (GDP)
- Means of redistributing income
Explain levels of employment and unemployment [2]
- Level of employment is the numbers of people that work in a country
- Level of unemployment is the number of people out of work in a country
List three impacts of an increase in unemployment [3]
- People have less money/income
- Cheaper to employ new workers
- Less expensive goods purchased
Explain skills shortages [2]
- Occur when people available for work do not have the skills that employers need
- This is most likely when the economy grows, unemployment is low and technology changes
What is the difference between direct and indirect taxation?
Direct is levied on income, wealth and profit. Indirect is levied on spending by consumers on goods and services
Give three examples of direct taxation [3]
- Income tax
- National insurance contributions
- Corporation tax
Give three examples of indirect taxation [3]
- TV license
- VAT
- Car tax
List the three min areas of government spending [3]
- Transfer payments
- Current spending
- Capital spending
What percentage of annual GDP does government spending take up?
40%
Explain explain transfer payments (part of gov. spending
Welfare payments made to benefit people like pensions or benefits
