Economic issues

Question 1

Gross domestic product

Answer 1

is the total value of output of goods and services in one year

Question 2

Main stages of the business cycle

Answer 2

• Growth
• Boom
• Recession
• Slump

Question 3

Growth

Answer 3

This is when GDP is rising, unemployment is generally falling and the country is enjoying high living standereds

Question 4

Boom

Answer 4

This is caused by too much spending. Prices start to rise quickly and there are shortages of skilled workers. Business costs rise, and its future is unpredictable.

Question 5

Recession

Answer 5

Often caused by too little spending. This is period when GDP actually falls. businesses may experience falling demand and profits. Unemployment occurs.

Question 6

Slump

Answer 6

A serious long-drawn-out recession. Unemployment reaches high levels and prices fall. many businesses fail

Question 7

Inflation

Answer 7

is the increase of the average price of goods and services over time

Question 8

Unemployment

Answer 8

exists when people who are willing and able to work cannot find a job.

Question 9

Economic growth

Answer 9

is when a country’s GDP increases - more goods and services are produced than in the previous year.

Question 10

The balance of payments

Answer 10

records the difference between a country’s import and export

Question 11

Rapid inflation consequences

Answer 11

• Workers wage will not be able to afford the same amount of good as before, their real incomes decrease.
• Prices of the goods produced in the country would be higher priced than other countries, so people may purchase foreign products
• Living standards fall, business focus more on survival than expansions

Question 12

Unemployment consequences

Answer 12

• Unemployed people would not produce any goods or services, total level of output in country decreases
• government would have to provide welfare benefits to those without jobs, thus increasing costs of the country.

Question 13

Impact of GDP on economic growth

Answer 13

• As output falls, fewer workers required, thus unemployment occurs
• Living standards drop, average real income falls thus people are poorer
• Business owners will not expand their business as people will have less money to spend

Question 14

Exports

Answer 14

are goods and services sold from one country to another county

Question 15

Imports

Answer 15

goods and services brought in to one country from another country

Question 16

Exchange rate

Answer 16

is the price of one currency in terms of another

Question 17

Exchange rate depreciation

Answer 17

is the fall in the value of a currency compared with other currencies.

Question 17

Exchange rate depreciation

Answer 17

is the fall in the value of a currency compared with other currencies.

Question 18

balance of payments deficit consequences

Answer 18

• Country could “run out’ of foreign currency and may have to borrow from abroad

Question 19

economic policies (Government control)

Answer 19

fiscal policy - taxes and government spending
monetary policy
supply side policies

Question 20

Fiscal policy

Answer 20

any change by the government of taxes and public sector spending

Question 21

Direct taxes

Answer 21

are paid directly from incomes, for example income tax or profit tax

Question 22

Indirect tax

Answer 22

are added to the prices of goods and services, and taxpayers pay for the tax as they purchase that good or service.

Question 23

Disposable income

Answer 23

is the level of income a taxpayer has after paying income tax

Question 24

Affect of increasing corporation tax rate on businesses:

Answer 24

• Businesses would have lower income after tax. Managers will therefore have less money to reinvest into the business, thus difficult to expand and main objective becomes survival.
• Lower money to give to investors of the business, causing many to leave and it discourages people from starting own businesses.

Question 25

Affect of increasing indirect tax rate on businesses:

Answer 25

• Prices of products would rise, consumers may buy fewer products and it only benefits businesses that produce essential products such as drinking water, since people will have to buy them.
• A prices rise, the real income of the workers decrease therefore they would pressure businesses to increase their wages, raising their costs.

Question 26

import tariff

Answer 26

is a tax on a imported product

Question 27

import quota

Answer 27

is a physical limit on the quantity of a product that can be imported.

Question 28

Effects of import tariffs on businesses:

Answer 28

• Business will benefit as the increases prices of foreign product means consumers switch to home products.
• retaliation occurs
• Action taken by a country whose exports are adversely affected by the raising of tariff or other trade-restricting measures by another country.

Question 29

Monetary policy

Answer 29

is a change in interest rates by the government or central bank, for example, the European central bank.

Question 30

Effects of high interest rates

Answer 30

• Firms with existing bank loans may have to pay more as the interest, thus reducing profit.

Question 31

Exchange rate appreciation

Answer 31

is the rise in the value of a currency compared to other currencies

Question 32

Supply side policy

Answer 32

try to increase the competitiveness of industries in an economy against those from other countries. Policies to make the economy more efficient

Question 33

Factors of supply side policies

Answer 33

• Privatisation
• Improve training and education
• Increase competition in all industries