Economic growth - an increase in the volume of goods and services (GDP) produced each year. Government will try to make this growth as large as possible.

Inflation - persistent general tendency of prices in the economy to rise

A high rate of inflation would affect a business through:

• Makes UK exports uncompetitive as they would cost more than similar products from countries with low inflation
• Reduces the yield an investment has as a certain percentage is lost to inflation
• Inflation creates uncertainty as it is change

‘In real terms’ - earnings adjusted for the effects of price rises. Price rises reduce the purchasing power of earnings.

Fiscal Policy - economic policy conducted by the government through taxation and public spending.

The budget - an annual statement of how much the government intends to spend in the next year and how this spending will be financed.

Direct Tax - taken from a business or person when they earn an income.

Examples:

• Income tax
• Corporation tax
• National insurance
• Council tax

Indirect Tax - A tax paid when a person or business spends their money. The main example of this is VAT.

Monetary Policy - manipulation of the level of demand in an economy by changing the interest rate.

Effect of a rise of interest on a business:

• Investment will fall: if it's more expensive to borrow businesses are less likely to take out loans to invest in new projects.
• Consumer spending will fall as more of their income has to be spent on repaying loans they have.
• Exchange rate rises as it is better to keep money in Pounds because of interest earned

Opposite happens for a fall of Interest

Subsidy - A financial aid or support that is meant to promote economic activity.

Supply-side policies - Aims to improve the economy's productive capacity, works on the supply side not the demand side.

Examples:

• Reducing welfare benefits to encourage people to get jobs
• Income tax cuts
• Cuts in corporation tax
• Improving education and training
• Removing ‘red tape’ regulation