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One possible reason why multinational companies (MNCs) such as Google and Apple locate in Ireland is the low rate of corporation tax - Leaving Cert Economics - Question b - 2019
Question b
One possible reason why multinational companies (MNCs) such as Google and Apple locate in Ireland is the low rate of corporation tax. (i) Explain the terms multinat... show full transcript
Worked Solution & Example Answer:One possible reason why multinational companies (MNCs) such as Google and Apple locate in Ireland is the low rate of corporation tax - Leaving Cert Economics - Question b - 2019
Step 1
Explain the terms multinational company and corporation tax.
Answer
A multinational company (MNC) operates in multiple countries but is managed from a single home country. This allows MNCs to benefit from globalization, gain market access, and tap into diverse consumer bases.
Corporation tax is a tax levied on the profits earned by companies. In Ireland, the corporation tax rate is notably low at 12.5%, which attracts MNCs seeking to minimize their tax liabilities.
Step 2
Discuss two other economic reasons why MNCs may locate in Ireland.
Answer
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Skilled Workforce: Ireland has a skilled, English-speaking workforce which is essential for many sectors, particularly tech and finance. This available talent pool supports the operational needs of MNCs.
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Membership of the EU: Being part of the European Union, MNCs in Ireland gain access to a vast market. This membership also fosters a favorable business environment due to reduced trade barriers and regulatory alignment.
Step 3
Discuss one economic reason why some MNCs may not locate in Ireland.
Answer
One reason why some MNCs may opt not to locate in Ireland is higher operational costs. These may arise from rising wage rates or increased costs of living, impacting the overall profitability of the business in the region. Moreover, the infrastructure may not support all potential business needs, leading MNCs to consider alternative locations.
Step 4
Explain each of the terms MPS and MPM.
Answer
MPS (Marginal Propensity to Save) refers to the proportion of additional income that is saved rather than spent. If MPS is 0.1, this means that out of every additional euro earned, 10 cents is saved.
MPM (Marginal Propensity to Import) describes the proportion of additional income that is used for purchasing imports. In this case, if MPM is 0.4, then 40 cents of every additional euro is spent on imports.
Step 5
Step 6
Explain the meaning of your answer.
Answer
The result, a multiplier of 2, indicates that for every euro injected into the economy, the total income generated will increase by 2 euros. This reflects the amplification effect of spending in the economy, allowing for enhanced economic activity and growth.