Economic Factors

Question 1

What is macro economics?

Answer 1

The study and analysis of the behaviour of the whole economy

Question 2

What is the economy?

Answer 2

The collective behaviour of a number of different groups such as businesses, people and employees and consumers and the government

Question 3

What is the nature of economics?

Answer 3

• Comparing economy with itself 10 years ago is not like for like
• Effects of a policy in the past won’t necessary have the same effect
• Dynamic - changes over a period of time

Question 4

What is economic activity?

Answer 4

The level of output in all sectors of the economy - primary secondary and tertiary

Question 5

What is GDP?

Answer 5

The total value of all the economy’s output (measured quarterly or yearly)

Question 6

Why does GDP rise?

Answer 6

Usually due to a rise in inflation but it is adjusted by deducting the rate of inflation to give a true GDP value

Question 7

What happens when GDP rises?

Answer 7

Employment rises, jobs more secure, consumers more spending power, more demand for businesses

Question 8

What is the circular flow of income?

Answer 8

The continuous flow of income from business to households as payments for work, and from households to businesses as payment for products

Question 9

What are leakages?

Answer 9

Income that leaks away from the econonomy and so does not get passed back to UK firms from households, comprises taxes, savings and imports

Question 10

Reasons why income does not go directly to UK firms…

Answer 10

• Tax
• Savings
• Imports

Question 11

How does the government combat leakages?

Answer 11

• Gov spending - schools/hospitals
• Exports
• Investment - capital spending by businesses

Question 12

What are injections?

Answer 12

Income coming into the UK economy that does not come from UK households, comprises investment, gov spending and exports

Question 13

What are supply side policies?

Answer 13

• Training
• Performance related pay
• Cutting TU power
• Labour mobility
• Income tax, corporation tax
• Technology
• Privatisation
• Deregulation

Question 14

What does an interest rate rise result in?

Answer 14

GPD down, inflation down

Question 15

What does an interest rate fall result in?

Answer 15

GPD up, inflation up

Question 16

What impact does a weaker pound have on inflation?

Answer 16

Imports cheap so inflation up

Question 17

What are interest rates?

Answer 17

The price of money set by the Bank of England

Question 18

How does a rise in interest rates impact borrowing?

Answer 18

Less likely to borrow, less investment, less expansion = current debt up

Question 19

How does a rise in interest rates impact customers?

Answer 19

Disposable income down, demand down, revenue down, profits down, unemployment up

Question 20

How does a rise in interest rate impact the exchange rate?

Answer 20

Beneficial for people abroad keeping their money in the UK, demand for currancy UP, exchange rate UP

Question 21

What are the four macro economic indicators?

Answer 21

1. GPP/ economic output
2. Unemployment
3. Mangement of money supply - controlling prices
4. Balance of payments - imports vs exports

Question 22

What is fiscal policy?

Answer 22

Controlling the economy via taxation and spending

Question 23

Tools used in fiscal policy…

Answer 23

• Tax
• Gov spending
• Legislation

Question 24

What is monetary policy?

Answer 24

Controlling the money supply in the economy

Question 25

Tools used in monetary policy...

Answer 25

- Trade policies - protectionism, tariffs, exchange rate | - Interest rates

Question 26

What does the gov do if unemployment is too high?

Answer 26

Spends money on facilities to create jobs like universities

Question 27

What does the gov do if imports are too high compared to exports?

Answer 27

Quotas, export more, exchange rate

Question 28

What does the gov do if inflation is too high?

Answer 28

Monetary policy, raise interest rates

Question 29

What does the gov do if GDP too low?

Answer 29

Export more

Question 30

Difference between direct and indirect tax?

Answer 30

direct - pay specifically - income tax | indirect - paid by someone i.e business - VAT

Question 31

What happenes if income tax is increased?

Answer 31

Disposable income down, demand down, revenue down, profit down, redundancy up

Question 32

What happens if VAT is increased?

Answer 32

Prices up, demand down, revenue down, profit down

Question 33

What happens if corporation tax is increased?

Answer 33

retained profit down, dividends down, reinvestment down

Question 34

What is a recession?

Answer 34

Two successive quartlery falls in GDP