Business Studies Worksheet -01

Cambridge Ordinary Level

Student Name: __________________ Date: ……………

Economic Issues
1. The economy of Country A is growing rapidly. Unemployment is falling and the incomes of most consumers
are rising. However, inflation increased to 8 per cent last year. Many business owners are worried that the
government could increase interest rates.

a) What is meant by 'inflation'? [2]

-----------Increase in the average price level of goods and services over time------

b) Identify two likely economic objectives of the Government of Country A. [2]

----------------Low Inflation-------------

----------------Low Unemployment-----------

c) Identify and explain two types of taxes that a government can use to raise revenue. [4]

--i) Direct taxes: taxes that imposed on incomes such as wages and company profits. When people or
companies receive income it is taxed directly.

--ii) Indirect taxes: taxes that are put on goods and services which raise their price. When people buy
goods in a shop, a proportion of their expenditure is paid to the government.

d) Identify and explain two ways in which an increase in interest rates could affect businesses in Country
A.

-i) Higher rates will increase interest costs for business with high debts and this reduce their profits.

--ii) Higher rates will reduce the income of consumers with high debts (e.g. to buy houses). This will
reduce their spending, special on non-essential goods so business such as restaurants will have less
demand.

e) Do you think all businesses within a country benefit when the economy grows? Justify your answer.
[6]
- Yes: Higher GDP will mean that output is increasing, unemployment is likely to fall and people’s
income will increase too. Business will be able to sell and probably increase price too.
- No: some business produce essential goods and the demand for these might not increase: if they are
cheap alternatives to more expensive goods, the demand could fall. If inflation results from rapid
economic growth then business that export products may become less competitive.
- Overall: Judgement depends on the types of product the business makes.