Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What impact does high unemployment have on businesses?

Increases business investment
Results in increasing demand for outputs
Reduces demand for business outputs
Leads to expansion of staff

The correct answer is: Reduces demand for business outputs

High unemployment typically leads to reduced demand for business outputs. When unemployment rates are high, a significant portion of the population is without work, which directly impacts their income levels. As individuals lose their jobs or face job insecurity, their spending power diminishes. Consequently, consumers tend to cut back on non-essential purchases and may even prioritize essential goods and services, leading to a general decrease in demand for a wide range of business outputs. Businesses, facing decreased consumer spending, may see a drop in sales revenue which can then prompt them to make adjustments, such as reducing production, cutting costs, or even laying off staff, thus perpetuating the cycle of high unemployment. This situation stresses the interconnectedness of employment levels and overall economic activity, demonstrating the negative ripple effect high unemployment can have on business health and growth. Other choices suggest outcomes that typically do not align with high unemployment scenarios, reflecting a misunderstanding of economic principles.