2.1 Government and the Economy Flashcards

Question

Explain the impact of economic growth on the ENVIRONMENT

Answer 1

environmental groups believe that the benefits of growth are lower than the costs generating growth. For example, more cars or flights are taken which contribute to the greenhouse gases causing global warming. Also, growth uses up non-renewable resources such as oil or gas which after being used, cannot be replaced. This means future generations will have fewer resources => referred to as unsustainable growth

Answer 2

if an economy overheats, demand rises too fast, causing prices and imports to rise, a situation that governments may try to correct by raising taxes and interest rates

Answer 3

economic growth that is not possible to sustain without causing environmental problems

Answer 4

rate at which prices rise, a general and contributing rise in prices

Answer 5

period where the level of aggregate demand is falling

Answer 6

total demand in the economy including consumption, investment, government expenditure and export minus imports

Answer 7

measure of the general price level (excluding housing costs)

Answer 8

measure of the general price level, which includes house prices and council tax

Answer 9

1. demand-pull inflation 2. cost-pull inflation

Answer 10

inflation caused by too much demand in the economy relative to supply

Answer 11

- rising consumer spending encouraged by tax cuts or low interest rates - sharp increases in government spendings - rising demand for resources by firms - booming demand for exports

Answer 12

inflation caused by rising business costs

Answer 13

price paid to lenders for borrowed money; it is the price of money

Answer 14

economists who believe there is a strong link between growth in the money supply and inflation

Answer 15

monetarists believe that there is a strong link between inflation and growth in money supply. The money supply is the stock of notes and coins, bank deposits and financial assets in the economy. Inflation may be caused when households, firms and the government borrow more money from banks to fund extra spending. This adds to the money supply as there are now more bank deposits (borrowed money increases bank balances). The extra money lent by the banks create more demand and prices go up. This type of inflation is more likely to happen if interest rates are low because borrowing is likely to increase when they are low. But if interest rates rise, borrowing will fall as it becomes more expensive, less supply of money and demand falls. As a result, pressure on prices are relieved and inflation falls.

Answer 16

- prices - wages - exports - unemployment - menu costs - shoe leather costs - uncertainty - business and consumer confidence - investment

Answer 17

inflation makes prices rise so reduces the purchasing power of money. This means that people cannot buy as much with their income. Therefore, households will experience a fall in their living standards unless incomes rise faster than prices, it may not become a problem

Answer 18

amount of goods and services that can be bought with a fixed sum of money

Answer 19

when prices are rising, workers need to increase their wages to compensate for the loss of purchasing power. If workers can negotiate higher wages with their employers, they will get more money. However, as a result of higher wages, firms may need to raise their prices as costs have risen. If this pattern is repeated, a wage/price spiral develops. So demand for higher wages when their is inflation can cause conflict between employers and trade unions which could result in a strike and both workers and firms would lose out

Answer 20

if inflation is higher at home than in other countries, firms may find it difficult to sell in overseas markets. Because the prices for exports will rise so demand for exports fall which means that the balance of payments is affected negatively. Falling demand may result in job losses for those people employed by businesses that sell abroad

Answer 21

high levels of inflation usually mean that aggregate demand is rising. As a result, firms will be keen to increase output since the prices goods is increasing. This means that firms will need to recruit more workers, which reduces unemployment. However there can be times where the government intervenes where they want to reduce inflation so needs to accept the high levels of unemployment

Answer 22

if inflation is rapid, firms will have to increase their prices frequently. This will cost money as firms need to make new brochures, update website and inform sale staff => called menu costs because, for a restaurant, when prices are increased a new menu has to be printed

Answer 23

costs to firms of having to make repeated price changes

Answer 24

when prices change frequently, consumers and firms will have to spend more time looking forthe lowest price or the best value for money => this involves "shopping around" which is a cost because it takes time and wears out the leather on your shoes so are called the shoe leather costs inflation

Answer 25

costs to firms and consumers of searching for new suppliers when inflation is high

Answer 26

if inflation is high and varying, firms will not be able to predict what prices will be. This makes decision making and investment decisions difficult for firms to plan for the future as these decisions will affect them in the long term

Answer 27

the uncertainty caused by inflation may effect their confidence. e.g. if consumers are anxious about inflation, they may become cautious => less willing to borrow money and spend their income on goods or services. So they save up more which will reduce demand affecting the economy businesses may postpone plans for growth or reduce spending on product development => not confident so no taking risks If hyperinflation exists, it increases the worries of businesses and consumers and could be able to destabilise an country

Answer 28

very high levels of inflation; rising prices get out of control

Answer 29

inflation causes a decline in business investment because it requires spending lots of money now in hope of returns in the future. Uncertainty about future prices by inflation, lack of confidence among decision makers, investment projects are likely to be postponed or cancelled => negative growth and affect employment in the economy

Answer 30

payment, or the process of making one

Answer 31

when those actively seeking work are unable to find a job

Answer 32

survey (used in EU) is called the Labour Force Survey (LFS) and is carried out every month. In the survey, the International Labour Organisation (ILO) defines unemployment => people without a job and those out of work. This definition is used internationally so that comparisons can be made

Answer 33

to stop employing someone because there is no work for them to do

Answer 34

- cyclical or demand deficient unemployment - structural unemployment - seasonal unemployment - voluntary unemployment - frictional unemployment

Answer 35

unemployment caused by falling demand as a result of a downturn in the economic cycle. this is linked to the economic cycle. When an economy moves from a boom into a downturn, business activity slows down and people are laid off. This will continue to worsen if the economy goes into a recession or depression. People lose their jobs because demand for goods and services fall so firms start laying off workers

Answer 36

unemployment caused by changes in the structure of the economy such as the decline in an industry. over time, the structure of the economy changes which can cause structural unemployment

Answer 37

- sectorial unemployment (when people are laid off because the industry is declining) - technological unemployment (when jobs that were previously done by people are now done by machines) - regional unemployment (unemployment in a particular country is not likely to be te same in all regions)

Answer 38

unemployment caused when seasonal workers, such as those in the holiday industry, are laid off because the season has ended

Answer 39

unemployment resulting from people choosing not to work. they may choose not to work because they are not prepared to work for the wages offered or as they do not like the idea of working in general

Answer 40

when workers are unemployed for a short period of time as they move from one job to another

Answer 41

- output - use of scarce resources - poverty - government spending on benefit - tax revenue - consumer confidence - business confidence - society

Answer 42

if people are unemployment, the productive potential of a country is not fully being exploited. As a result, the level of output is low so the national income and living standards will be lower. But, if employment was caused by development of new technology, output will not fall

Answer 43

people who are out of work does not make any contribution to production. This is a waste of resourcesand so result in lower levels of national income

Answer 44

in some developing countries, many people have never worked in their lives because of the few opportunities so may only support themselves at a minimum level of growing crops. even in developed countries, most people find themselves without a job. Their income fallsbecause state benefits are generally lower than wages. In some extreme cases, unemployed lose homes as they cannot afford mortgage payments

Answer 45

in most developed countries, when people are unemployed they are entitled to recieve some financial benefit from the state. If unemployment levels rise, the government has to allocate more money to unemployment benefit => opportunity cost

Answer 46

when unemployment rises, tax revenue falls because most taxes are linked to income and spending. This means the government has to spend less and so may have to cut off some public sector services. Alternatively, they may borrow more money, increasing national debt or may have to increase tax rates

Answer 47

during a time of high unemployment, consumer confidence is likely to fail. Their incomes falls because state benefits are generally lower than wages. As a result, these people loose confidence and play a less significant role in the economy. Also, people who remain employed start to worry about their own job security affecting confidence negatively. They become more cautious, which will result in lower levels of spendingand probably more unemployment

Answer 48

when firms lay off workers they have to pay them redundancy money. Also, the remaining workers may get demotivated as they may fear that they will be next to be made redundant. Sales are likely to fall for businesses when unemployment starts to rise in the economy as people have less to spend. Along with this, it may reduce the confidence of business decision makers. As a result, they are less likely to take risks and may postpone or cancel investment projects

Answer 49

sometimes unemployment can have an impact on local and wider communities e.g. unemployment may lead to an increase in crime as people still need nessessities in life and so may need to do so to meet their material needs

Answer 50

record of all transactions relating to international trade

Answer 51

that part of the balance of payments where flows of savings, investment and currencies are recorded

Answer 52

part of the balance of payments where all exports and imports recorded

Answer 53

goods and services sold overseas

Answer 54

goods and services bought from overseas

Answer 55

goods and services are sold and bought overseas. So a country will keep a record of all transactions relating to international trade => this is called the balance of payments which is divided into 2 parts: 1. current account 2. capital and financial accounts

Answer 56

difference between total exports and total imports (visible and invisible) this can be in DEFICIT or SURPLUS

Answer 57

when value of imports exceeds the value of exports

Answer 58

when value of exports exceeds the value of imports

Answer 59

difference between visible exports and visible imports

Answer 60

trade in services

Answer 61

money received from the loan of production factors abroad

Answer 62

government transfers to and from overseas agencies such as the EU

Answer 63

trade in physical goods

Answer 64

someone who gets advantages from an action or change

Answer 65

price of one currency in terms of another

Answer 66

the pattern of international trade can be influenced by changes in exchange rate. if a country's exchange rate gets stronger (which means 1 unit of currency can buy more units of another currency), exports become more expensive and imports become cheaper. This may result in fewer exports being sold and more imports being bought => negative impact on current account the balance of current account may also have an impact on exchange rate. e.g. if a country has a surplus on current account resulting from rising sales of goods abroad, demand for a currency will rise (foreigner will need to buy that country's currency to pay for the goods). This increase in demand for a currency could drive up the exchange rate. Therefore, the country's exchange rate gets stronger

Answer 67

- quality of domestic goods - quality of foreign goods - price of domestic goods - price of foreign goods - exchange rates between countries

Answer 68

if a country develops a reputation for high-quality goods, it is likely to enjoy rising sales from overseas buyers. This will drive demand for exports up and improve a current account balance. Also, if the quality for domestic goods are high, demand in the home market will rise as consumers will prefer them to imports which will also improve the current account

Answer 69

if goods and services from overseas are superior to those produced domestically, there will be an increase in demand for these imports which will have a negative impact on the current balance. The size of the current account deficit, for example, will increase. There will also be less demand for home produced goods, which could result in lower domestic output and employment

Answer 70

demand for goods and services are heavily influenced by price. e.g. If domestic goods were expensive, from rapid inflation, demand from overseas buyers will fall which will progressively damage its current account

Answer 71

e.g. if foreign goods are cheaper than domestic goods, there will be a rapid demand for imports which will have a negative impact on current account, reducing the size of a surplus

Answer 72

since exchange rate affects the prices of both domestic and foreign goods, any change in its exchange rate impacts current account

Answer 73

continuing to exist or happen, especially for longer than is usual or desirable

Answer 74

- leakages from the economy - inflation - low demand for exports - funding the deficit

Answer 75

a persistant current account deficit suggests that a country is becoming increasingly dependent on imports. This means that consumers are buying goods produced outside of the domestic economy. As a result, money flows out of the economy to overseas businesses. It means that output and employment levels in the domestic economy is under threat

Answer 76

a country running a high current account deficit might be exposed to inflationary pressures. If the prices of imports go up, this will be reflected in the general price level since many imported goods will be counted when the CPI is calculated. Consequently, rising import prices will result in higher domestic inflation levels. The greater the reliance on imports, the greater the threat of inflation when import prices rise

Answer 77

a country with a high account deficit might be struggling to sell goods and services abroad. If demand for exports are low, it might mean that the quality of goods and services is poor or the price is too high. Unless the demand for exports can be reversed, a country may suffer a progressive decline in economic growth and a rise in unemployment. A current account deficit may reflect structural weaknesses in the economy which means domestic firms may struggle because they are not competitive in certain industries

Answer 78

if a country has a continuing current account deficit, it will need foreign currency to pay for the rising quantity of imports that are being purchased. If the foreign currency reserves of a country runs low, it may be necessary to borrow. However, persistant borrowing may cause long-term problems. Sometimes, a current account deficit can be financed by a capital account surplus

Answer 79

waste material left over once the useful content has been removed from an ore, can be toxic

Answer 80

- open-cast mining, where materials are extracted from a giant hole in the ground => problem is that many of the minerals and other useful materials that are mined are only available in very small quantities. This means huge quantities of Earth and rock is extracted from a site just for a small fraction of valuable material. This involves crushing rocks which may release harmful materials. During the separation process, something called tailings are produced which is a mixture of crushed rocks and liquid. It is possible for toxic and radioactive elements from tailings to leak slowly through the ground into water systems if not managed effectively. Also it may affect the countryside and destroy wildife habitat - another problem is that modern techniques use large quanities of water. Wastewater from these activities may find its way into waterways and threaten the supply of fresh drinking water

Answer 81

- mining - power generation - chemical processing - agriculture - construction

Answer 82

when making electricity, you burn fossil fuels => causing a wide range of harmful environmental impacts such as: - gas emissions => dangerous "greenhouse gases" like CO2, carbon monoxide and hydrocarbons which contribute to global warming. Also, the gas released into the atmosphere produce acid rain - release of hot water or disposal of waste, etc. This uses a large amount of steam, power plants need to use huge quantities of water and return water back to its source. The water can be dirty and warm which is damaging to the wildlife inside water systems

Answer 83

chemicals are used to make the majority of sunthetic materials which can play an important role in our everyday life. e.g. chemical are used in products to provide protection for the crops and increase yields, prevent and cure diseases, provide isulation to reduce energy use and many more to improve the standards of living + quality of life however, they can have a negative impact on human health and the environment when their production and use are not used responisbly

Answer 84

- use of pesticides and fertilisers. Although fertilisers increase crop yields, after heavy rainfall some always end up into rivers, lakes and the sea where it can kill aquatic life. Also, some fertilisers can starve soil of organic matter. As a result, soil cannothold sufficient water. Pesticides may also cause ill health and may influence long term effects - farming also contributes to global warming => deforestation + factory farming

Answer 85

- produces waste material => difficult to dispose - contruction activites such as land clearing, operation of diesel engines, demolition, burning and working with toxic materials contribute to air pollution - construction sites generate high levels of dust which can cause health problems including: respiratory illnesses, asthma and cancer - water pollution => harmful chemicals and resources used for contruction can be washed into water systems

2.1 Government and the Economy Flashcards

(109 cards)