Cambridge International A Level Business - Practice Questions & Verified Answers
What is a subsidy financial assistance given by a government to a firm or enterprise
Avantages of subsidies ~Avoid rising of unemployment due to business failure
~Makes essential goods and services affordable
~Encourages economic growth
Disadvantages of subsidies 1. Opportunity cost - loss of gov spending in other areas of economy.
2. Encourage inefficiency - firms = complacent.
3. Difficult to estimate subsidy.
4. Subsidies are available to some firms = distorts competition and government
failure.
What is market failure? a situation in which a market left on its own fails to allocate resources efficiently
Examples of market failure 1) Externalities
2) Demerit (overconsumed) & merit (under-consumed) goods
3) Monopolies
4) Inequality
5) Imperfect info
6) Market immobility
7) Public goods (not provided in free market)
What are macroeconomic objectives ~economic growth
~low price of inflation
~low rate of unemployment
~exhcange rate stability
Economic growth The sustained increase in the quantity and quality of goods and services produced
by an economy
(Measured as GDP)
Recession decline in real GDP lasting at least two quarters or more
What is GDP? Gross Domestic Product
Benefits of economic growth 1. Reduction in illiteracy
2. Reduction in poverty
3. Improved health
4. Longer lives
5. Political stability
Causes of economic growth 1. an increase in available resources
2. a technological improvement
3. a change in regulation
, Cambridge International A Level Business - Practice Questions & Verified Answers
What is the business cycle? a cycle or series of cycles of economic expansion and contraction.
What is a boom? a period of fast economic growth
What is a recession? a temporary economic slump, shorter and less extreme than a depression
What is a slump/depression? - A prolonged period of declining GDP
- Very weak consumer spending and business investment, many business failures,
rapidly rising unemployment, prices may start falling
What is recovery? When all downturns eventually lead to a recovery when real GDP starts to increase
again
What is inflation? a general increase in prices and fall in the purchasing value of money.
What is deflation? A decrease in the general price level of goods and services.
What is hyperinflation? an extremely rapid rise in the general price level
Causes of inflation demand pull and cost push
What is demand-pull inflation? when spending increases, the demand curve moves to the right and this increases
prices
What is cost-push inflation? Period of inflation caused by upward shift in aggregate supply leading to period of
rising prices and FALLING (or slowing) output
impacts of low inflation on business decisions ~Costs of products and services will increase
~The value of fixed assets (land and buildings) could rise
~Reduced customer spending
impacts of high inflation on business decisions ~ Employees will demand for a higher wage
~Consumers may become price sensitive
~ Rapid inflation will led to higjer rates of interest
what is the working population all individuals of working age who are capable of and available for work
What is a subsidy financial assistance given by a government to a firm or enterprise
Avantages of subsidies ~Avoid rising of unemployment due to business failure
~Makes essential goods and services affordable
~Encourages economic growth
Disadvantages of subsidies 1. Opportunity cost - loss of gov spending in other areas of economy.
2. Encourage inefficiency - firms = complacent.
3. Difficult to estimate subsidy.
4. Subsidies are available to some firms = distorts competition and government
failure.
What is market failure? a situation in which a market left on its own fails to allocate resources efficiently
Examples of market failure 1) Externalities
2) Demerit (overconsumed) & merit (under-consumed) goods
3) Monopolies
4) Inequality
5) Imperfect info
6) Market immobility
7) Public goods (not provided in free market)
What are macroeconomic objectives ~economic growth
~low price of inflation
~low rate of unemployment
~exhcange rate stability
Economic growth The sustained increase in the quantity and quality of goods and services produced
by an economy
(Measured as GDP)
Recession decline in real GDP lasting at least two quarters or more
What is GDP? Gross Domestic Product
Benefits of economic growth 1. Reduction in illiteracy
2. Reduction in poverty
3. Improved health
4. Longer lives
5. Political stability
Causes of economic growth 1. an increase in available resources
2. a technological improvement
3. a change in regulation
, Cambridge International A Level Business - Practice Questions & Verified Answers
What is the business cycle? a cycle or series of cycles of economic expansion and contraction.
What is a boom? a period of fast economic growth
What is a recession? a temporary economic slump, shorter and less extreme than a depression
What is a slump/depression? - A prolonged period of declining GDP
- Very weak consumer spending and business investment, many business failures,
rapidly rising unemployment, prices may start falling
What is recovery? When all downturns eventually lead to a recovery when real GDP starts to increase
again
What is inflation? a general increase in prices and fall in the purchasing value of money.
What is deflation? A decrease in the general price level of goods and services.
What is hyperinflation? an extremely rapid rise in the general price level
Causes of inflation demand pull and cost push
What is demand-pull inflation? when spending increases, the demand curve moves to the right and this increases
prices
What is cost-push inflation? Period of inflation caused by upward shift in aggregate supply leading to period of
rising prices and FALLING (or slowing) output
impacts of low inflation on business decisions ~Costs of products and services will increase
~The value of fixed assets (land and buildings) could rise
~Reduced customer spending
impacts of high inflation on business decisions ~ Employees will demand for a higher wage
~Consumers may become price sensitive
~ Rapid inflation will led to higjer rates of interest
what is the working population all individuals of working age who are capable of and available for work
