CH21Mindmap

Ch21 Business, the Economy and Government

Tap any card to reveal its definition

📊 Economic Variables

Inflation

A sustained increase in the general level of prices over a period of time. Measured using the Consumer Price Index (CPI) — a basket of goods tracked over time by the CSO.

Deflation

A decrease in the general level of prices in two consecutive quarters. Can reduce business revenue and lead to job losses.

Impact of HIGH Inflation on Irish Businesses

• Purchasing power falls — consumers buy less
• Wage demands rise — strikes, higher labour costs
• Lower standard of living — cost of living up
• Exports less competitive — Irish prices higher abroad
• Higher production costs — raw materials, energy

Interest Rates

The cost of borrowing money expressed as a percentage of the amount borrowed. Set by the European Central Bank (ECB) for eurozone countries.

Impact of RISING Interest Rates

• Debt capital more costly — higher repayments, harder to expand
• Harder to attract investors — savings accounts more attractive
• Less consumer spending — higher mortgage payments
• Reduces business profits — higher interest charges on loans

Employment / Unemployment

Unemployment

The percentage of the labour force that is not employed but is seeking work.

Benefits of HIGH Employment

• Government tax revenue up, less social welfare spending
• Less emigration / brain drain
• Increased consumer spending — more disposable income
• Greater sense of job security and motivation

Challenges of HIGH Employment

• Labour shortages — hard to recruit skilled staff
• Upward wage pressure — businesses compete for workers
• Higher rents and property prices
• Social costs — traffic, housing demand

Exchange Rates

The price of one currency expressed in terms of another. Affects competitiveness of Irish exports and cost of imports.

Impact: Sterling WEAKENS vs Euro

↓ Demand for Irish goods by UK consumers (more expensive for them)
↓ Demand for Irish holidays by UK tourists
↑ Demand for UK imports by Irish consumers (cheaper for us)
↑ Demand for UK holidays for Irish people

Taxation

Direct Tax

Tax on earnings and income. E.g. PAYE (income tax), USC, Corporation Tax (12.5%), PRSI.

Indirect Tax

Tax on spending and consumption. E.g. VAT, excise duties on alcohol/tobacco, SSDT (Sugar Sweetened Drinks Tax).

Tax to Create a Positive Business Climate

• Reduce PAYE → more spending power → stimulates demand
• Reduce Corporation Tax → better profits → fund growth
• Reduce VAT → lower prices → more sales
• Tax incentive schemes → breaks/relief on expansion

🏛️ Government's Role in Business & the Labour Force

Government Expenditure

Capital expenditure — one-off investments (schools, roads, hospitals).
Current expenditure — day-to-day (public sector wages, social welfare). Both create jobs and stimulate business activity.

Government Agencies

Enterprise Ireland — supports indigenous firms.
IDA Ireland — attracts foreign direct investment (FDI).
LEOs — small business advice and grants.
Solas — vocational training.

Government Grants

Financial support for expansion from LEOs, IDA Ireland and Enterprise Ireland — reduces the cost of starting up or expanding. Does not need to be repaid.

Government Regulations

Laws that regulate business activity to protect employees, consumers and the environment. E.g. Environmental Protection, Data Protection, employment legislation.

Training & Education

Free third-level education and Solas vocational training create a more skilled, productive workforce, making Irish workers and Ireland more attractive to employers and foreign investors.

Deregulation

The removal of legal barriers to allow firms to enter a market or industry. Increases competition and reduces prices for consumers.

National Minimum Wage

The lowest legal wage per hour, set by the government. Protects low-paid workers' living standards but may increase labour costs for businesses.

💡 Why Government Encourages Entrepreneurship

Employment

More enterprises create more stable Irish-owned jobs — less likely to relocate than MNCs which may leave Ireland.

Taxation Revenue

Increased business activity increases tax revenue (PAYE, Corporation Tax, VAT) for government investment in public services.

Exports

More indigenous businesses mean more products sold abroad — improving the balance of payments and reducing import dependence.

Reduce Social Welfare

More employment reduces reliance on social welfare payments — freeing up government funds for capital investment.

Spin-off Effects

A thriving enterprise culture inspires more people to become entrepreneurs — creating a positive cycle of business creation and economic growth.

Tap card to flip · ✓ removes from deck · ✗ goes to bottom

Tap to reveal

2025 Q2(B)Benefits & challenges of increasing employment for Irish businesses. (20)▼

Discuss the benefits and challenges of increasing employment for Irish businesses. (20 marks — Discuss = State + Expand)

✏️ Benefits

Increased Consumer Spending: More people employed means more disposable income in the economy. Consumers spend more on goods and services, directly boosting sales revenue for Irish businesses.

Higher Tax Revenue / Lower Welfare Costs: Government receives more PAYE, USC and PRSI from employed workers, while spending less on social welfare — allowing government to invest more in infrastructure that benefits businesses.

✏️ Challenges

Labour Shortages: When employment is high, businesses find it harder to recruit skilled staff. This can delay expansion plans and force businesses to operate below full capacity.

Upward Wage Pressure: A tight labour market creates upward pressure on wages as businesses compete for workers. This increases the cost base and can squeeze profit margins.

📌 Discuss = State + Expand. This exact question appeared in 2025 and 2018. It requires BOTH benefits AND challenges — don't give all of one type. Active headings earn 2m; expansion with keywords earns 3m.

2025 Q2(C)How the Irish Government could create a positive climate for business. (20)▼

Outline how the Irish government could create a positive climate for business. Use examples to support your answer. (20 marks — 4 × 5, name + explain + example)

✏️ Four Ways (any four of the following)

Reduce VAT: Reducing VAT on goods and services allows businesses to charge lower prices or improve profitability. E.g. the temporary reduced VAT rate for hospitality stimulated demand in the tourism sector.

Government Grants: Financial supports and low-interest loans from Enterprise Ireland and LEOs help indigenous businesses fund R&D, marketing and job creation without costly debt.

Capital Expenditure: Investment in infrastructure — roads, broadband, schools, hospitals — creates construction jobs and improves the operating environment for all businesses.

State Agencies: Through Enterprise Ireland, IDA Ireland and LEOs, the government provides advice, mentoring, training and grant aid. E.g. a start-up can access seed funding through their local LEO.

📌 Each point needs: name + explain + example. Using a named Irish agency or specific policy secures the example mark. Asked in 2025 and 2022. If the Q says "apart from taxation", do not use tax-related points.

2021 Q2(A)Illustrate the impact of economic variables on Irish businesses. (20)▼

Illustrate the impact of the following economic variables on Irish businesses: Interest rates | Inflation rates | Employment (20 marks — 2 × 7 (4+3) + 1 × 6 (3+3))

✏️ Interest Rates

Interest rate = cost of borrowing capital, set by the ECB. A decrease in interest rates leads to more consumer borrowing — for houses, cars, furniture — increasing demand and boosting Irish business sales. E.g. a business takes out a loan at a lower rate to fund expansion and hires 10 more staff.

✏️ Inflation Rates

Inflation rate = a sustained increase in the general level of prices. When inflation increases, the purchasing power of consumers' income falls, leading to reduced consumer spending and lower sales for Irish businesses. Exports also become less competitive as Irish prices rise relative to other markets.

✏️ Employment

Employment rate = % of labour force in paid work. A decrease in employment levels has a negative impact — when people have less income, consumer spending decreases, leading to a fall in sales revenue for Irish businesses.

📌 Illustrate = State + Explain + Example. Structure every variable: Definition → Direction (rising/falling) → Impact on businesses → Example.

2021 Q2(B)How the Government affects the labour force (apart from taxation). (20)▼

Apart from taxation, discuss the different ways in which the Irish Government affects the labour force in Ireland. (20 marks)

✏️ Three Ways (tax-related points score zero)

Government Expenditure: Investment in capital projects (schools, roads, hospitals) directly creates construction jobs and spin-off employment. Current expenditure pays public sector wages for teachers, nurses and civil servants.

Training and Education: Funds free third-level education and Solas vocational training — creates a more skilled, productive workforce, making Ireland attractive to foreign investment.

National Minimum Wage: Sets the lowest legal hourly wage. Protects workers' living standards and increases disposable income, though it raises labour costs for businesses in hospitality and retail.

📌 "Apart from taxation" = NEVER use tax points. Valid alternatives: Government Expenditure, Agencies (EI, IDA, LEOs, Solas), Grants, Regulations, Training, Deregulation, National Minimum Wage.

2019 Q2(B) & (C)Impact of economic variables + reasons government encourages entrepreneurship.▼

(B) Outline the impact of the following economic variables on Irish businesses. (20 marks — Inflation | Interest rate | Employment rate)
(C) Explain the reasons why the Irish government encourages entrepreneurship in Ireland. (15 marks — 3 × 5)

✏️ Part (B) — Economic Variables

Inflation rate: When inflation increases, it reduces the purchasing power of consumers' income, leading to reduced spending and lower sales. Employees demand higher wages, increasing business costs. Exports become less competitive as Irish prices rise.

Interest rate: When interest rates rise, the cost of capital increases — businesses face higher loan repayments and find it harder to expand. Consumers have less disposable income due to higher mortgages, reducing spending.

Employment rate: When employment increases, consumers have more income — leading to higher demand. But high employment also creates upward wage pressure and labour shortages.

✏️ Part (C) — Government Encourages Entrepreneurship

Employment: More enterprises create more stable Irish-owned jobs — less likely to relocate than MNCs. Reduces social welfare costs and increases PAYE and PRSI tax revenue.

Exports & Balance of Payments: More home-produced goods sold abroad increases export revenue, reduces import dependence, and strengthens the balance of payments.

Spin-off Effects: A thriving culture creates further enterprise activity — more people inspired to start businesses. Agencies like LEOs and Enterprise Ireland are funded to develop this enterprise culture.

📌 Connect each reason to why it benefits the GOVERNMENT or the ECONOMY — not just the entrepreneur. Tax revenue and reduced welfare spending are commonly missed points.

🔥 HOT Impact of Economic Variables

The #1 must-know for Ch21. Appears in almost every exam in some form. Asked in 2025 (employment benefits/challenges), 2024 Q2(A) (economic growth + interest rates), 2023 ABQ(C) (30 marks), 2021 Q2(A), and 2019 Q2(B). Know all five variables with the direction + impact formula. Always state whether the variable is rising or falling, then give the specific impact on Irish businesses.

Past papers: 2025, 2024, 2023, 2021, 2019, 2018, 2015. Appears almost annually.

🔥 HOT Government Affects the Labour Force / Creates Positive Climate

The second must-know. 2025 Q2(C) asked "create a positive climate for business" and 2021 Q2(B) asked "how government affects the labour force (apart from taxation)". This alternates between two framings every 1–2 years. Know 6–7 government tools: expenditure, agencies (EI, IDA, LEOs), grants, regulations, training/education, deregulation, minimum wage. If the Q says "apart from taxation", never use tax-related points — they score zero.

Past papers: 2025, 2022, 2021, 2020, 2016, 2010.

⚡ WARM Exchange Rates — Sterling vs Euro

Appeared in 2015 SQ7 and 2010 SQ3. With ongoing Brexit-related currency volatility, a short question on the impact of sterling weakening/strengthening vs the euro is very possible. Know the four-direction model: Irish goods, Irish holidays, UK imports, UK holidays. If sterling weakens, all four arrows flip from what they'd be if it strengthened.

Last SQ: 2015. Currency volatility makes this topical for 2026.

📅 DUE Reasons Government Encourages Entrepreneurship

Last asked in 2019 Q2(C) — seven years ago. The five reasons (employment, taxation, exports, reduce welfare, spin-off effects) overlap with the "positive climate" question but are framed differently. If the examiner wants a fresh angle from 2025's positive climate Q, this is the natural alternative.

Last asked: 2019. Due for return.

🎯 The Direction + Impact Formula

The notes state explicitly: it is easier to score full marks when you state whether a variable is increasing or decreasing, then give the specific impact. Vague answers won't earn the explain mark.

Formula: When [variable] increases/decreases, [specific impact] occurs, leading to [consequence for Irish businesses].

✅ "When inflation increases, the purchasing power of consumers' income falls, leading to reduced consumer spending and lower sales revenue for Irish businesses."

❌ "Inflation affects businesses." — Too vague. Earns 0 marks for the explain.

⚠️ The "Apart From Taxation" Trap

The 2021 Q2(B) specifically excluded taxation. If you include PAYE, VAT, Corporation Tax or any budget-related point, you earn zero for those points. Always read the question stem carefully before starting.

✅ Valid (non-tax): Government Expenditure National Minimum Wage Deregulation Government Agencies Grants Regulations Training & Education

❌ Invalid: "Reduce VAT", "Lower Corporation Tax", "Tax incentives"

💱 Exchange Rate — The 4-Direction Model

When sterling weakens vs the euro, apply all four impacts. If it strengthens, reverse all four.

Sterling weakens:
↓ Demand for Irish goods by UK consumers
↓ Demand for Irish holidays by UK tourists
↑ Demand for UK imports by Irish consumers
↑ Demand for UK holidays for Irish people

🔑 Keywords That Earn the Marks

sustained increase in prices CPI / basket of goods purchasing power deflation cost of borrowing ECB debt capital disposable income labour force brain drain upward wage pressure direct tax / indirect tax PAYE / USC / PRSI VAT / excise duty corporation tax 12.5% capital expenditure current expenditure Enterprise Ireland IDA Ireland LEOs Solas deregulation national minimum wage enterprise culture balance of payments

📋 No ABQ in Chapter 21

Ch21 is in Unit 6. The ABQ technique (State → Explain with keywords → Direct word-for-word quote) does NOT apply. However, if the 2026 ABQ crosses chapter boundaries (as happened in 2023), you may need to link economic variables to a passage — but use normal exam technique, not the ABQ quote structure.