Budget deficit and its effect on PC World

a) Define the term government Budget Deficit and explain how and why the government is attempting to reduce its current budget deficit. b) Outline how i) reductions in the budget deficit and ii) lower interest rates might affect PC World.

Susana

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Answers
A government's budget deficit is amount by which it's revenues (e.g. taxes) falls short of it's spending (on schools, hospitals etc).
jon.ellis
29 November 2011
If you as an individual spend more than you earn, then you either pay for it via savings or you borrow the money.
jon.ellis
29 November 2011
If you borrow the money, then the interest rate you pay will depend on what the bank thinks the risk of you not paying is. The higher the risk, the higher the interest rate.
jon.ellis
29 November 2011
The same is true for Governments. They have to be able to payback the loan.
jon.ellis
29 November 2011
In Greece, there was a high risk that the loans could not be repaid, even with a freeze on public sector pay, raising the taxes and cutting pensions.
jon.ellis
29 November 2011
This website explains a bit more about what went wrong in Greece http://www.bbc.co.uk/newsbeat/10100201
jon.ellis
29 November 2011
If you look at how a government taking action to reduce a budget deficit might effect a retailer such as PC World, think about the effect it would have on the economy as a whole, individual customers and the company.
jon.ellis
29 November 2011
Taking extra tax revenues out of an economy will cause it to slow down (reduce growth), this may frighten people into not spending on big ticket items such as a 3D television.
jon.ellis
29 November 2011
Extra taxes on VAT and fuel reduce customers disposable income, and their ability to pay.
jon.ellis
29 November 2011
Extra taxes on a business e.g. an increase in corporation tax or rates, will reduce profits. This in turn could lead to reduced re-investment in the business (e.g. opening new stores) and lower customer demand via reduced dividends.
jon.ellis
29 November 2011
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