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| Question | Answer |
| INCOME TAX | Money taken off an employee's salary. This results in less money to spend in the shops. |
| Value Added Tax | This is added to goods and services. A rise in VAT increases prices. |
| Corporation TAX | It is a tax on company profits. A rise in this tax means companies keep less of their profits leading to less company investment and the possible loss of jobs. |
| National Insurance Contributions | These are payments made by both the employee and the employer. They pay for the cost of a state pension and the National Health Service. An increase in this tax raises a company's costs and could result in inflation. |
| INTERNATIONAL TRADE | It is the exchange of goods and services between different countries. UK business can compete against foreign rivals by offering better designed, higher quality products at lower prices. |
| EXCHANGE RATE | It is the price of foreign currency one pound can buy. If the current exchange rate is two dollars to the pound, then one pound is worth two dollars. |
| Economic Activity | It is the amount of production taking place. Over time, the level of economic activity in a country tends to move up and down in a business cycle. |
| Downturn or Slump | When output falls and many businesses shed staff because sales are falling. The economy experiences a recession. |
| Upturn or Boom | When businesses increase output and hire more staff to keep up with extra demand. The economy experiences economic growth. |
| Impact of a recession | This varies from business to business. Firms making premium and luxury products are hit hard by any downturn because customers often cut back on non-essentials first. Businesses with large debts can find it hard to meet interest payments when sales fall. However, a recession makes it easier for a business to recruit new staff in readiness for any upturn in economic activity. |
| Credit | This is borrowed money. Many small firms depend on credit such as bank loans and overdrafts to help finance their business activities. |
| Interest | It is the reward for lending and the cost of borrowing. The interest rate is the percentage rate charged on a loan or paid on savings. For example, an annual interest rate of 5% means £5 is paid in interest for every £100 saved or borrowed. The Bank of England decides on interest rates in the UK. |
| An increase in interest rates can affect a business in two ways: | Customers with debts have less income to spend because they are paying more interest to lenders. Sales fall as a result. Firms with overdrafts will have higher costs because they must now pay more interest. |
| Market prices | depend on levels of supply and demand. These levels rise and fall according to a number of factors, and can have a big impact on the success of a business. |
| Demand | is the amount of a product customers are prepared to buy at different prices. |
| Supply | is the amount of a product businesses are prepared to sell at different prices. |
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