Chapter 27 - Economic Issues Flashcards
GDP
Gross Domestic product
Total value of output of goods and services in a country in a year, a way of measuring the size of the economy.
Main stages of the business cycle
Growth
Boom
Recession
Slump
Growth stage of the business cycle
Stage in which the GDP is rising, unemployment is falling, the country has higher living standards and businesses are doing well. The desired stage.
Boom stage of the business cycle
To be avoided as it triggers recession
Caused by too much spending, prices rise quickly and there are shortages of skilled workers. Business costs rise and concern is raised for future business activity
Recession stage of the business cycle
Caused by too little spending
Period when GDP falls and most businesses experience falling demands and profits. Unemployment rises
Inflation
Increase in the average price level of goods and services over time
Unemployment
Exists when people who are willing to work cannot find jobs
Economic growth
When a countries GDP increases, meaning more goods and services are produced than in the previous year
How do employment levels impact businesses (4)
It affects the ability to hire new employees, the higher the unemployment rates the more people to choose from.
Customers may have lost their jobs leading to a reduction in sales.
GDP falls
Less products are produced.
What can a business do when unemployment levels are rising
They can sell cheaper products, causing an increase in sales as customers will buy cheaper alternatives to cut back on costs
How often is GDP calculated
Every 3 months
How does inflation impact businesses
Costs increase, forcing them to increase their selling price which decreases their sales.(depending on the products they sell)
Essential products are more expensive leaving customers with less income available for non-essential products
How does a rise in GDP impact businesses
A rise in GDP means the economy is growing/recovering, resultung in more sales as people have jobs and therefore income to spend
It’s harder to recruit new employees as the unemployment rate is likely to fall
Exports
Goods and services sold from one country to other countries
Imports
Goods and services brought in by one country from other countries
Exchange rate
Price of one currency in terms of another
Exchange rate depreciation
Fall in value of a countries currency compared with other currencies
Government economic objectives (4)
Low inflation
Low unemployment
Economic growth
Balance of payments
Why is low inflation a government objective
This is when there is a low rise in average prices over time, which encourages businesses to expand and sell goods abroad.
Rapid inflation leads to changes in spending patterns and reduces real incomes, forcing people to buy foreign goods as they will be cheaper than those domestically produced causing a loss of jobs
It also prevents businesses from expanding, therefore no new jobs and a fall in living standards
Why is economic growth a government objective (4)
More workers are needed, reducing unemployment
Total level of output of goods + services increases
Businesses will be able to expand as they will have money to spend
Raises living standards
Why is low unemployment a government economic objective (3)
Unemployed people do not produce goods/services therefore they dont contribute to the GDP
Government has to pay unemployment benefit to the jobless, money which could be spent of important infrastructure
Improves workers living standards
Real income
Value of an income in terms of what can be bought with it
(Buying power)
Why is balance of payments an economic objective (3)
Governments want to avoid being in a payment defecit (imports>exports) as they want money coming into the country rather than leaving as it raises the GDP. They want a positive balance.
If the country is in a negative balance they could run out of foreign currency and need to borrow abroad
Exchange rates will fall leading to exhange rate depreciation resulting in less buying power.
Impact of changes in taxes for businesses
If taxes increase, Sales fall as consumers have less money to spend, the business should benefit if taxes are decreased