economic factors

Question 1

what does the term economy mean ?

Answer 1

refers to the process or system by which goods and services are produced, sold and bought in a country or region

Question 2

what type of economy does the uk have ?

Answer 2

has a mixed economy with strong emphasis on free-market principles but with government intervention in certain areas
- healthcare, education, social welfare

Question 3

what is economic growth ?

Answer 3

an indication of the change in the goods and services produced by an economy

Question 4

what is economic growth measured by ?

Answer 4

in GDP (gross domestic product)
- looks at the value of goods and services produced in the UK economy over a period of time

Question 5

what does a positive GDP suggest ?

Answer 5

indicates an economy is growing

Question 6

what does a negative GDP suggest ?

Answer 6

indicates an economy is slowing down

Question 7

what does GDP measure ?

Answer 7

measures the value of goods and services produced within a country’s borders, by citizens and non-citizens alike

Question 8

what does GNP measure ?

Answer 8

measures the value of goods and services produced by only a country’s citizens but only domestically and abroad

Question 9

what does ‘real GDP’ take into account ?

Answer 9

the rate of growth in the size of the UK economy allowing for the effects of inflation

Question 10

what is business strategy ?

Answer 10

the long-term plans through which a firm seeks to achieve its corporate objectives

Question 11

elements of an economic environment ?

Answer 11

• unemployment
• business cycle
• exchange rates
• inflation rates
• interest rates
• state of labour market

Question 12

what are the four stages/phases of the business cycle ?

Answer 12

• boom
• recession
• recovery
• slump

Question 13

what is the business cycle ?

Answer 13

a measurement of economic growth

Question 14

what is useful to think of when considering the business cycle ?

Answer 14

price elasticity of demand

Question 15

what is a boom ?

Answer 15

a characterised by a period of very strong economic growth and high levels of business and consumer confidence

Question 16

boom - key characteristics ?

Answer 16

• more jobs created : increases living standards
• low unemployment
• firms are investing heavily : to satisfy high consumer demand
• ## higher wage demands : due to increased inflation

Question 17

what is a boom caused by ?

Answer 17

• lower taxes
• lower interest rates
  : people are encouraged to spend more money in the economy which increases the demand for products and services

Question 18

what is a recession ?

Answer 18

characterised by two quarters of negative economic growth (when there is a decline in a company’s sales or earnings)

Question 19

when does a recession occur ?

Answer 19

• when incomes and outputs start to fall
• increased costs of production : rising prices of labour and materials
• businesses may face lower profits
• UK government tends to raise interest rates : to attempt to avoid inflation increasing further

Question 20

recession - key features ?

Answer 20

• decrease in real income
• lower levels of industry production
• decline in wholesale/retail sales
• Bank of England will raise interest rates : ease inflation
• limited borrowing from banks
• higher unemployment
• customers become more price sensitive
• redundancies occur : businesses reduce their costs