Lesson 17: Economics Factors and Government Intervention 1

Rising unemployment may provide an opportunity to business because:

• It will increase consumer expenditure

• It will be easier to recruit on lower pay

• Consumer spending will fall

• Unemployed people have more time to shop

The Bank of England uses interest rates primarily to control:

• Business profits

• Economic growth

• Inflation

• Taxation

If the government decides to use fiscal policy to stimulate demand in an economy, this might involve:

• Increasing VAT

• Reducing interest rates

• Reducing government spending

• Reducing income tax

Which is not a supply side policy?

• Privatisation

• Increasing unemployment benefit

• Innovation grants for business

• Building roads and rail networks

Increasing interest rates will be a particular cost to businesses with high (a)  

An increase in VAT will add mostly to consumer price inflation if demand for a product is:

• Income elastic

• Price elastic

• Price inelastic

• Income inelastic

Cost push inflation may lead to reduced international competitiveness if:

• raw material prices rise and inflation is lower in the destination country for exports

• raw material prices rise and inflation is higher in the destination country for exports

• wages fall and inflation is lower in the destination country for exports

• wages rise and inflation is higher in the destination country

Arguments against government intervention do not include:

• Taxes on profits can reduce the incentives to be enterprising

• Regulation can reduce customer exploitation

• Customers will vote with their feet, poor products won't be bought and businesses will fail

Which is not a likely impact of an increase in income tax rates?

• The incentive to work reduces, so there could be higher unemployment

• Higher levels of investment in public services

• Lower Economic growth as disposable incomes are reduced

• Lower levels of spending on income inelastic products

A business decides based on the economic forecast for GDP, that it is going to incorporate inferior goods into its portfolio. What is the likely combination of expected GDP growth and income elasticity for the existing portfolio?

• GDP growth -4%, and YED +0.2

• GDP growth -4% and YED +1.2

• GDP growth +4% and YED +1.2

• GDP growth -4% and YED -1.2