Page 302 - Cambridge IGCSE Business Studies

Cambridge IGCSE Business Studies Section 6 External influences on business activity

Low inflation

KEY TERM When inflation is low, people enjoy a better standard of living as they can aff ord to

pay for goods and services. They can also afford to pay for non-essential (luxury)
Inflation: the price increase items. It becomes easier for companies to set up new ventures and expand, which
of goods and services over time.

means that all the sectors of the economy benefit. If inflation increases, however,

people may not be able to afford to buy local goods and instead may buy foreign

goods (which may be cheaper). This can affect local businesses in the country as
they receive fewer sales.
Low unemployment
KEY TERM All governments want their country to have a low level of unemployment.
A government wants as many people to have jobs as possible so that:
Level of unemployment: the
proportion/percentage of the
■ they contribute to the total output of the country and improve economic growth
population that are capable
(see gross domestic product below)
of working but are unable to find
a job. ■ the people of the country can earn money and have a better standard of living
■ the government does not have to spend money on unemployment benefits so can
spend that money on improving the country’s infrastructure
■ the higher the level of employment, the more income tax a government receives.

Economic growth
KEY TERM Th e gross domestic product (GDP) shows whether a country’s economy is growing
or not. If GDP increases it means more goods and services have been produced in
Gross domestic product (GDP): the country compared to the previous year. If GDP increases, this is good for people
the value of all goods and services
300 as their standard of living should improve. A growing economy should mean more
produced by a country in a year.
business opportunities.
However, if GDP falls, this is bad for the economy and the businesses and people
in it. For example it could lead to lower output so fewer workers are needed, and
generally people experience a lower standard of living as they cannot afford to buy

as many goods and services.
GDP is a good measure of economic activity. It allows us to analyse the
economic growth of a country from one year to the next between years and to
compare its performance with other countries’ economies.

A government wants as many
people as possible to have a job