Chapter 1: Economics is away of thinking Flashcards
What is economics
Economics is a social science which studies human behaviour in relation to peoples aims (needs and wants) available to them to achieve these aims,knowing that the resources have alternative uses (opportunity cost).
Outline why choice is fundamental to the study of economics
In economics resources are scarce and have alternative uses, while wants are infinite. As a result a choice must be made and these choices involve an opportunity cost.
Positive economic statement
A positive economic statement is a statement based on data, facts and figures. These are statements of fact. An analysis of data relating to these issues will indicate that these statements are true.
Examples of a positive economic statement
- A rise in unemployment results in a fall in income.
- The introduction of the sugar - sweetened drinks tax has resulted in a fall in demand for sugary drinks.
Normative economic statement
A normative economic statement is a statement that refers to how things should be. These statements are opinions and are not backed up with data to prove that they are correct.
Example of Normative economic statements
The government should increase child benefit in order to reduce poverty levels.
What is an opportunity cost
When a choice is made due to limited resources, the opportunity cost of the choice is the best alternative that is foregone. Example: The spending on the Macroom bypass rather than new properties to address homelessness.
What is general government debt
- The National debt (345 billion)
- The debt of local and central government bodies
- money borrowed during the financial crisis (2009) to bail out financial institutions (440 billion)
2 positives of national debt
- The money saved our banks during the financial crisis: it allowed our banks to continue to do business following the crash.
- Stabilised the business cycle: the government can borrow money and inject it into the economy. This is to stimulate demand and national income.
2 negatives of Ireland’s National Debt
- Improved social housing (opportunity cost): the interest that has to be used for other things such as healthcare, education and social welfare. 4.5B was paid in interest in 2019.
- The money has to be repaid with interest by the future taxpayers. Between 2016 and 2019 close to 22 billion was paid in interest using taxpayers money.
The business cycle
trough = bottom
peak = top
expansion = going up
contraction = going down
The great depression
The Great Depression (1929 - 1928) was the most significant economic downturn of the 1900s in the Western World. The US economy expanded substantially during the 1920. The wealth of the nation rose and millions invested in the New York Stock Market using savings and borrowed.
The Great Depression 2
As a result of the widespread speculation, stock prices were much higher than their actual values. On Oct 29th 1929 stock prices began to collapse as nervous investors sold their stocks. The Wall Street Crash of 1929 resulted in huge losses for investors. Rising unemployment and lower wages = less consumer spending.
The 1950s and 1960s
Since the foundation of the Irish State, economic policy had centred on self - sufficiency and trade protection, i.e. by discouraging imports, Irish industry would grow. This policy was unsuccessful. In 1958 T.K. Whitaker produced an Economic Development plan. The focus of the plan was to open up the economy to international trade.
Ireland joins the European Economic Community (EEC)
The term single market refers to the EU as one territory, without any internal borders or other obstacles to the free movement of goods, services, capital and people. The EU is a customs union which means: free trade between member states, i.e. no trade barriers such as tariffs. A common external tariff for non - members.
Advantages of the EU
- Free movement of goods/services
- Foreign Direct Investment (FDI)
- Employment
- Free movement of people
- The EU is large and powerful trading bloc
Disadvantages of the EU
- Firms in all other 26 EU member states are free to sell their goods/services in Ireland. While this is good for consumers, it can result in a loss of business for Irish firms.
2.Irelands GDP has risen so we must contribute more to the EU budget. - A member state cannot pass law that contradicts laws passed by the EU itself.
Trading bloc
A trading bloc is a group of countries that have trade agreements with each other, which implements trade barriers (e.g. tariffs) upon non - members, e.g. the EU
The Celtic Tiger 1
The term ‘Celtic Tiger’ refers to the significant rates of year - on - year economic growth in the economy from the mid 1990s until 2007. This period is also referred to as ‘the boom’. Increased FDI in the late 1990s resulted in increased employment and higher incomes. The level of exports also grew.
The Celtic Tiger 2
Consumer expenditure in the economy rose. The demand for property also grew. This led to a ‘property boom’ the demand for property led to a rise in property prices. Demand was fuelled by low interest mortgages. Both government current income and expenditure rose like never before. There were substantial increases in the public sector pay and in social welfare payments.
Financial Crisis 1
When the Lehman Brothers collapsed 2008, this had a knock on effect on financial institutions globally. For many years, US banks had been providing mortgages to people with poor credit ratings. When interest rates increased in the US, many of these sub - prime borrowers could not repay their mortgages and defaulted.
Financial Crisis 2
In Ireland nervous financial institutions became reluctant to lend to one another. This resulted in a sudden pause in credit availability from banks. In Ireland, property prices began to fall as property developers struggled to sell properties. Many builders went bankrupt and could not repay their huge loans. Some depositors began to withdraw their money. On 30th September 2008, the Irish government introduced the bank guarantee.
