Accounting and financial problems.

Savings.

Both businesses and individual citizens can take the decision not to spend all of the income that they receive. A number of factors are thought to determine the level of savings at any one time. Interest rates obviously influence the saver's decision since they represent the return on his or her savings. Many, economists believe that decisions to save are taken in response to periods of economic uncertainty: the more worried people are about interest rates, job security and so on, the more they are likely to save. Alternatively, there is evidence that when money is losing value quickly, as in a period of inflation, people tend to purchase consumer durable goods such as televisions and washing machines.

В) Another factor is social change. Previous generations placed great store by saving in order to carry out major purchases; this is less common today perhaps due to the ready availability of credit.

Imports.

You will know that expenditure by UK inhabitants on goods and services imported from abroad will remove those funds from the domestic circular flow and will cause a decrease in the level of economic activity. Periodically, the UK has spent too freely on imports and earnings from exports have been insufficient to cover this. Many factors encourage us to purchase imports: some are favourable to the economy in the long term, whilst others are harmful. If imports of raw materials increase due to the growth of a domestic industry, then this indicates an expanding economy, which should sell more exports in the future in order to pay for the increased expenditure. However, if the imports are the consequence of UK citizens preferring foreign goods on grounds of, for example, price or quality, then the impact may be harmful as jobs are lost in domestic industries.

С) Taxation.

Funds are withdrawn from the circular flow in the form of taxation by the government. It levies two types of tax:

v Direct taxes, such as income tax, corporation tax (on profits) and other taxes on income or wealth;

v Indirect taxes, such as VAT and customs and excise duties, which are levied on spending by all of us

If the authorities withdraw funds through taxation and then fail to spend this tax revenue, the circular flow will reduce the level of activity in the economy.

Taxation policy has been substantially altered by the Conservative government in the 1980s and early 1990s. It has reduced direct taxes because of the belief that taxation of this kind reduces the incentive to work and so dampens the spirit of enterprise in the economy. Indirect taxes, such as VAT, have been increased to make up for some of the revenue lost from direct taxes. The government has thus transferred the tax burden from direct to indirect taxes. The total burden of taxation has hardly altered.

Вариант 5(2 чел)

А) Inflation is generally defined as a persistent rise in the general price level with no corresponding rise in output, which leads to a corresponding fall in the purchasing power of money.

In this section we shall look briefly at the problems that inflation causes for business and consider whether there are any potential benefits for an enterprise from an inflationary period.

Inflation varies considerably in its extent and severity. Hence, the consequences for the business community differ according to circumstances. Mild inflation of a few per cent each year may pose few difficulties for business. However, hyperinflation, which entails enormously high rates of inflation, can create almost insurmountable problems for the government, business, consumers and workers. In post-war Hungary, the cost of living was published each day and workers were paid daily so as to avoid the value of their earnings falling. Businesses would have experienced great difficulty in costing and pricing their production while the incentive for people to save would have been removed.

Economists argue at length about the causes of and «cure" for inflation. They would, however, recognize that two general types of inflation exist:

v Demand-pull inflation

v Cost-push inflation

В) Demand-pull Inflation.

Demand-putt inflation occurs when demand for a nation's goods and services outstrips that nation's ability to supply these goods and services. This causes prices to rise generally as a means of limiting demand to the available supply.

An alternative way that we can look at this type of inflation is to say that it occurs when injections exceed withdrawals and the economy is already stretched (i.e. little available labour or factory space) and there is little scope to increase further its level of activity.

Cost-push Inflation.

Alternatively, inflation can be of the cost-push variety. This takes place when firms face increasing costs. This could be caused by an increase in wages owing to trade union militancy, the rising costs of imported raw materials and components or companies pushing up prices in order to improve their profit margins.

Вариант 6 (3 чел)

А) Inflation can adversely affect business in a number of ways:

Accounting and financial problems.

Significant rates of inflation can cause accounting and financial problems for businesses. They may experience difficulty in valuing assets and stocks, for example. Such problems can waste valuable management time and make forecasting, comparisons and financial control more onerous.

Falling sales.

Many businesses may experience falling sales during inflationary periods for two broad reasons. Firstly, it may be that saving rises in a time of inflation. We would expect people to spend more of their money when prices are rising to avoid holding an asset (cash), which is falling in value. However, during the mid-1970s, when industrialized nations were experiencing high inflation rates, savings as a proportion of income rose! It is not easy to identify the reason for this, but some economists suggest that people like to hold a relatively high proportion of their assets in a form which can be quickly converted into cash when the future is uncertain. Whatever the reason, if people save more they spend less and businesses suffer falling sales. The economic model predicts that if savings rose the level of activity in the economy would fall. Clearly, if this happened we would expect businesses to experience difficulty in maintaining their levels of sales.