Transcript Section 7 Prospects for the town of Bowton File

Section 7 - Prospects for the town of Bowton
Lesson objectives
• To be able to discuss how business might be
affected by changes in the level of government
spending
• To be able to discuss how business might be
affected by changes in the level of the rate of
interest
• To be able to discuss how business might be
affected by changes in the level of employment
• To be able to answer quiz questions based on the
case study
Starter
• Read section 7 – highlight/ circle or underline
any key economic terms
• Target – find five!
Unemployment
• The text says:
• “During the period from
2008 to the end of 2013
unemployment rose by
6000” in Bowton.
• “Some jobs have been
created. However most of
these were low paid, parttime jobs and some
businesses are still laying off
workers”.
Watch this short 4 min
video on unemployment
made by Tupton Hall school
How would rising unemployment affect
Holden plc and Bowton? Section 7
Effects of rising
unemployment on Holden
plc
 Large pool of applicants when
they open the factory
 May be able to pay minimum
wage and still attract lots of
candidates for each job
vacancy
 Council grant more likely to
attract them to locate in
Bowton and create jobs
Effects of rising
unemployment on Bowton
 Large numbers out of work and
claiming benefits
 Young families start to leave
area to look for work
 House prices fall as there is no
employment nearby to sustain
a mortgage
 Shops and other local
businesses forced to close due
to lack of demand
Recession
• The text tells us:
• “A recent article in the
Bowton Times
considers how Bowton
has been affected by
the recent economic
recession.”
Recession defined
• Recession is a period of temporary economic
decline during which trade and industrial
activity are reduced, generally identified by a
fall in GDP in two successive quarters.
• 'Gross Domestic Product - GDP' The monetary
value of all the finished goods and services
produced within the UK in a year
How would the recession affect Holden plc
and Bowton? Section 7
Effects of the recession on
Holden plc
 Need to move back to the UK
to take advantage of the
skilled labour force to improve
quality
 Need to become a Fairtrade
manufacturer to gain
competitive advantage in
difficult trading times
Effects of the recession on
Bowton
 Closure of many local
businesses
 Need to support independent
retailers such as Bromley
Furnishings
 Economic downturn reduces
demand from consumers for
goods and services in the area
Interest rates
• Video 3 mins
Interest rates
• The text says:
• “ A further boost to the local economy is that
interest rates are predicted to stay low which
will help businesses in Bowton.”
How will the low interest rates affect Holden
plc and Bowton? Section 7
Effects of low interest rates
on Holden plc
 Cost of borrowing is cheaper
so Holden plc will be able to
borrow to finance the building
of the new factory or the
rental of the old factory
 If Holden do borrow to
finance their move back to the
UK they will pay low interest
rates on their loans or
mortgages, which means more
profit and more dividends for
shareholders
Effects of the low interest
rates on Bowton
 Customers in the area may be
encouraged to borrow money so
they can continue to demand
goods and services from local
businesses
 Customers are less likely to
save while rates are low which
stimulates the local economy
Government
spending
• Every year we pay tax; income tax,
VAT, corporation tax, etc
• This money adds up to about £700
billion that the government can
spend.
• They spend this money on:
–
–
–
–
–
Welfare (109billion)
Pensions (150billion)
Healthcare (NHS) (130billion)
Education (90billion)
Defence (45billion)
• Some of the money is given as
funding to councils like Bowton. They
raise the rest through council tax
which will vary depending on the
area.
How would government spending cuts affect
Holden plc and Bowton? Section 7
Effects of government
spending cuts on Holden plc
 The grant for the new factory
may not be given as the council
cannot afford the grants
 This may mean that Holden
has to look for other areas
that will award a grant – it
depends if they need the
money to help the set up. The
case does not tell us.
Effects of government
spending cuts on Bowton
 This may mean that Bowton
cannot attract new business
into the area
 Unemployment will not improve
 Economic growth will continue
to stagnate (be slow)
Inward investment
• In the text it states “The
trend for business to
relocate abroad has
slowed and there has
been some inward
investment and more is
expected.”
Inward investment is an injection of money
from an external source of a country. For
example when a Japanese company locates
a car building plant in the Midlands.
Video on inward investment 3 mins
Grants
• In the text it says “Bowton council is
considering whether or not to give grants to
businesses which locate in the Bowton area.
• Some of the councillors say that because of
government spending cuts, the council cannot
afford to give grants.
• Others believe that giving such grants will be
self-financing.
What is a grant?
• Every year local councils are given a
budget to spend by government on
local issues
• A grant is money that is given (and
not expected back) to a business;
– To support projects that generate
increased business turnover and job
creation in the area
– To encourage private sector businesses
to locate in the area
– To promote business opportunity in an
area
– To offer financial and advisory support
to innovative businesses locating in
that area
Visit this
website to
look at
some of the
grants on
offer
Quiz on section 7
1. Where was the article published?
2. What is Holden plc moving back from China
to Bowton an example of?
3. How many new jobs will the Holden plc
relocation create?
4. What is the difference between the number
of start-ups and the number of closures?
5. How much have incomes fallen by on
average?
Answers to section 7 quiz
1.
2.
3.
4.
The Bowton Times
Inward investment
30
15 start ups – 42 closures = 27 less
businesses in the area
5. 7%