Government Objectives & Policies (Edexcel IGCSE Business): Flashcards
Exam code: 4BS1
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What are the four main government economic objectives?
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What are the four main government economic objectives?
Economic growth, low inflation, low unemployment, and a healthy balance of payments.
Define economic growth.
Economic growth is the increase in the amount of goods and services produced per head of population over time.
Define inflation.
Inflation is a general increase in prices and a fall in the purchasing value of money over time.
Both the UK and US governments set their Central Bank an inflation target of .
Both the UK and US governments set their Central Bank an inflation target of 2%.
Define unemployment.
Unemployment is the number of people without a job who are actively seeking and available for work.
Give two benefits of low unemployment.
It increases national output, improves living standards, and reduces government welfare spending.
Define the balance of payments.
The balance of payments is the relationship between the value of a country's imports and exports over a period of time.
What is a balance of payments deficit?
A deficit is when money spent on imports is higher than money received from exports.
True or False?
A balance of payments surplus occurs when exports are worth more than imports.
True.
A surplus occurs when money received from exports is higher than money spent on imports.
How might raising interest rates help the government reduce inflation?
Higher rates mean people and businesses borrow less, reducing demand and revenue.
Positive economic growth usually raises the of living of a population.
Positive economic growth usually raises the standard of living of a population.
True or False?
Government actions to meet economic objectives have no impact on businesses.
False.
Any policy action (e.g. tariffs, interest rate changes) has a direct impact on business.
How might a tariff on imports affect domestic businesses?
It raises the price of imports, increasing demand and revenue for businesses selling domestically-produced goods.
How does a fall in tax rates affect customers and businesses?
Customers have more money to spend, and businesses have more money to invest, expand or hire workers.
How does an increase in government spending affect businesses?
Businesses see more demand for their goods/services, so their profit may rise.
Give an example of a business that benefits from government supply contracts.
Pharmaceutical manufacturers (selling to public hospitals) or construction companies (building roads and schools).
Define tax revenue.
Tax revenue is money raised through taxation to fund public spending.
Name three common sources of tax revenue.
Company profits (corporation tax), workers' income (income tax), sales tax, import tax, and excise tax.
Define corporation tax.
Corporation tax is a tax on a proportion of a company's profit.
Income tax that rises to progressively higher rates as earnings increase is called a tax.
Income tax that rises to progressively higher rates as earnings increase is called a progressive tax.
What is excise tax?
Excise tax is applied to certain manufactured products such as alcohol, tobacco and fuel.
True or False?
Setting tax rates can sometimes be politically motivated.
True.
E.g. cutting income tax before an election could persuade voters with more disposable income.
Name three public services funded by government spending.
Education, healthcare, emergency services, the judicial system, and defence.
How does government spending on transport help businesses?
It lets businesses move goods around and gives workers flexibility to commute and access jobs.
True or False?
Government spending on healthcare and education helps make citizens productive contributors to the economy.
True.
Spending on health, housing and education helps citizens be productive employees or entrepreneurs.
What is sales tax?
A tax, such as VAT, applied to purchases of certain goods; higher rates are often applied to luxury goods.
Define infrastructure.
Infrastructure is the essential facilities and networks a government funds, such as transport networks, energy grids, hospitals and schools.
Give one way businesses benefit from government-funded infrastructure.
They may win government contracts (e.g. Mitie maintains hospitals), benefit from higher consumer spending, and gain efficiency.
How can good transport and energy networks help businesses?
Better transport improves logistics, and reliable energy and flood defences allow business continuity.
Define legislation.
Legislation refers to the laws and regulations created by governments.
Name three areas of law that affect business.
Consumer protection, equal opportunities, health and safety, competition policy, and environmental protection.
What does consumer protection law prevent?
Unfair selling practices, such as false claims, selling goods unfit for purpose, or selling short measures.
Equal opportunities law prevents workers being treated less favourably due to characteristics such as gender, race, disability and age.
Equal opportunities law prevents workers being treated less favourably due to protected characteristics such as gender, race, disability and age.
True or False?
A strong legal framework gives businesses stability to plan and invest.
True.
A strong legal framework provides stability for businesses to plan and invest.
Define a tariff.
A tariff is a tax placed on imported goods from other countries.
Give two reasons a government might use trade barriers.
To protect new industries or jobs, improve the balance of payments, retaliate, prevent dumping, or pressure a foreign power.
Give one benefit of tariffs.
They protect infant industries, raise government tax revenue, and reduce dumping.
Give one disadvantage of tariffs.
They raise the cost of imported materials, reduce competition, and reduce consumer choice.
A tariff increases the price of imported goods, shifting demand towards businesses.
A tariff increases the price of imported goods, shifting demand towards domestic businesses.
Define a trade bloc.
A trade bloc is a group of countries that agree to reduce or remove trade barriers between themselves, while keeping trade policies towards non-members.
True or False?
Membership of a trade bloc such as the EU usually means barrier-free trade between member countries.
True.
Trade bloc membership usually includes barrier-free trade between members (e.g. most EU countries share the Euro).
Define the interest rate.
The interest rate is the cost of borrowing money and the reward for saving.
Give one implication for businesses of rising interest rates.
Higher loan repayments, a possible fall in exports, fewer credit sales, and less willingness to invest.
When interest rates rise, customers are less likely to buy goods on , leading to a fall in sales.
When interest rates rise, customers are less likely to buy goods on credit, leading to a fall in sales.
True or False?
Higher interest rates usually strengthen a country's currency, making exports more expensive abroad.
True.
Higher rates strengthen the currency, making exports more expensive abroad, so demand may fall.
How can low interest rates stimulate demand in an economy?
Lower mortgage and credit repayments leave consumers with more disposable income, and cheaper borrowing funds large purchases.
True or False?
Low interest rates are always beneficial for every consumer.
False.
Some households rely on savings income, so pensioners and savers may struggle when rates are low.
Businesses may be less willing to make capital investments when high interest rates make more attractive.
Businesses may be less willing to make capital investments when high interest rates make saving more attractive.
Why might a business delay investment when interest rates are high?
Its retained profit may earn more if put into a savings scheme than if invested.
How do low interest rates affect consumers with mortgages?
Their mortgage repayments fall, leaving more disposable income to spend.
What is a Central Bank?
A Central Bank is the government's bank, responsible for managing the flow of money and regulating the banking system.
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