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Business, the Economy & Government, How the Government Create a…
Business, the Economy & Government
Economics & Economic Cycles (Booms & Busts)
Economic Growth~
Increase in the value of goods & services produced in an economy one year to the next.
Recession~
Two consecutive quarters of negative economic growth in an economy.
Economic Variables- Infaltion
Inflation~
A sustained increase in the general level of prices over a period of time .
Demand-Pull Inflation~
A persisten increase in eggregate demand. Usually occurring when an economy is close to having full employment.
Cost-Push Inflation~
Caused by persistent rises in the cost of production. Selling price of goods is increased to compensate for rise in production cost.
Impact of High Levels of Inflation in Ireland
Wage Demand from Workers~
Industrial relations issues & strikes can occur due to employees asking for higher wages, due to rise in cost of living.
Lower Standard of Living~
The cost of living has increased & if people dont increase their income, they will not be able to afford many things
Exports become Less Competitive~
If selling price for Irish goods & services increase, when they are sold abroad they will be more expensive, reducing demand for Irish exports.
Increased Government Expenditure~
The government might have to increase wages for public sector, so they will be able to maintain their standard of living.
Economic Variables- Interest Rates
The Effect on Irish Business if Interest Rates Rise
Debt is More Costly~
Its harder to start or expand a business, as debt repayments are more expensive due to higher interest rates.
Harder to Attract Investors~
Return on investments will increase resulting in investors investing in less risky options E.G: Deposite Account
Less Consumer Spending~
This will make loans more expensive, resulting in consumers buying fewer goods through borrowing.
Effects on the Irish Economy of Low Interest Rates
More Consumer Spending~
Availability of cheaper credit from financial institutions results in rise in demand for business products & services, increasing profits.
Easier to Attract Investor~
The return on saving is low, discouraging saving schemes. So investors might invest in a business, increasing business profits.
Debt Repayments are Cheaper~
Cost of loan repayments will fall, lowering business costs. This can result in a business becoming more competitive, increasing sales.
Interest Rate~
The cost of borrowing money expressed as a percent & return on money saved expressed as a percent of the amount saved.
How the Government Create a climate for Business in Ireland
1~ Government Expenditure
Capital Expenditure~
A once-off spending by the government. (Improvements of infrastructure)
Current Expenditure~
A regular day-to-day spending. (Salaries for public sector)
2~ Government Spending
Government Agencies
encourage different business activities through advice, training & grants
3 Government Agencies~
Enterprise Ireland~
-Helps organise trade fair events,
-Provides funding support,
-Gives export assistance,
-Helps with research & development.
Industrial Development Authority (IDA)~
-Provides data on Ireland,
-Conducts research on suitable locations,
-Networks with local industry,
-Develops third-level links.
Local Enterprise Offices (LEO's)
-Offer mentoring programmes,
-Give training programs & advice,
-Help businesses network,
-Offer financial supports.
3~ Government Taxation
How Tax Changes by the Government Could Impact Businesses
~Reduction of PAYE will increase consumer spending power,
~Reduction of cooperation tax will increase a businesses profits,
~Changes in tax rates could simulate demand in certain sectors
4~ Government Grants
~The government can provide businesses with grants, these grants can be used for research & development, feasibility studies buy machinery etc.
~As long as businesses adhere to the terms & conditions of the grant, they do not have to pay it back
5~ Government Regulations
-Environmental Laws~
Government regulates business enforcing the protection of the environment. This is done by the Environmental Protection Agency (EPA).
-Consumer Laws~
The Competition & Consumer Protection Commission (CCPC) is in charge of monitoring how businesses behave in Ireland.
-Employment Laws~
The government regulates businesses for the protection of employees in the workplace .
Data Protection Laws~
The government regulates businesses in order to protect the public from the misuse of information in manual or electric formant through the Data protection Commission.
Economic Variebles : Employment Rate
Unemployment Rate~
Is the percentage of labour force that is currently not employed.
Labour Force~
Consists of everyone either in work or looking for work, aged between 16-65.
Full Employment~
When almost everyone in a country who is looking for work, is able to find it.
Benefits of Rising Levels of Employment Rate
-Improved Government Finances~
Government will have higher revenue from taxes like PAYE & USC. VAT will increase and the government will spend less money on social welfare.
-Less Immigration~
More rates of employment in Ireland means that less people will have to migrate looking for work, less of a brain drain for the economy.
-Increased Spending in the Economy~
Higher employment levels lead to more discretionary income. Allowing new businesses to open & economy being boosted.
Challenges of Rising Levels of Employment in Ireland
-Labour Shortages~
Businesses might struggle to recruit staff to match vacancies. Resulting in businesses having to increase wages, making Irish goods more expensive.
-Increased Property Prices~
More job vacancies result in increased rent prices in cities as people can afford higher rents & want to live closer to work. This can result in lack of suitable accommodation in urban areas.
-Social Cost of Traffic~
Lack of suitable accommodation in urban areas results in workers living in commuter towns. Limiting community development due to community members spending majority of time commuting to work.
How Government Affect the Labour Force in Ireland
Improve Infrastructure~
Government can develop local infrastructure allowing businesses to attract employees to different regions. The government could also improve transport networks, attracting businesses to operate in these areas.
Up-skill Workers~
The government offers free secondary & third level education as well as short term training courses to up-skill & educate Ireland workforce.
Increase Minimum Wage~
Increasing the minimum wage attracts more people to join the workforce & look for work. However this increases business costs, resulting in businesses replacing labour with machinery.
Act As Direct Employer~
The government could increase the public sector workforce. It could reduce teacher : student ratio, requiring more teachers to per student.
Positive & Negative Effects of Business Activity on The Economy
Positive
Tax Revenue~
Businesses pay tax directly to the government in self-assesment tax & corporation tax, employees pay PAYE & USC. the government also collect VAT on goods sold.
Employment~
New & expanding businesses offer direct employment, as well as linked jobs in services (e.g: banks, couriers, hotels etc.)
Business Activity~
Business activity in rural towns prevent depopulation, and help restore community pride in an area. As well as providing shops & services in local areas
Standard of Living~
Businesses develop their capital, allowing them to improve machinery & technology. Because of this Ireland benefits from higher quality goods & we can develop the workforce so it is more skilled.
Negative
Inflation~
Labour shortages cause an increase in costs, forcing higher prices. Higher employment rates mean more disposable income, increasing prices due to high demand.
Environment~
Increase in business activity & economic development results in higher pollution levels, rise in smog & higher carbon emissions.
Social Costs~
Increased business activity applies pressure on infrastructure. Increased employment rate leads to higher demand for houses & causes traffic congestion.
More Competition~
Foreign businesses enter Irish markets if there is an increase in business activity. This is good for consumers due to more competitive prices, but bad for Irish businesses, can't compete with these low prices.