Economic issues

Question 1

List four government objectives

Answer 1

1. Low inflation: Lower costs so more people are able tp purchase g/s
2. Higher employment rates: More people working leading to less dependency on grants and funds
3. Economic growth: Increasing value of GDP
4. Balance of payments: Balance of amount of imports and exports

Question 2

Define and list characteristics of high inflation

Answer 2

Inflation: Rate of increasing price of g/s

Characteristics:

• Lower spending leading to poorer quality of life due to lower disposable income
• Less business start-ups and expansions so lower employment rates
• Increase in purchase of imports and foreign goods as its cheaper

Question 3

List characteristics of economic growth

Answer 3

Characteristics:

• Increased employment so increased income tax
• Increased GDP
• Greater living standards
• Increased investments so more corporate tax

*GDP: Gross domestic product
Corporate tax: Tax on business profit

Question 4

Define level of unemployment and list characteristics of low employment rates

Answer 4

Level of employment: Percentage of people able to work yet unable to find jobs

Characteristics:

• Lower g/s produced leading to lower economic growth so lower GDP
• People earning can have better quality of life
• The government spends more on unemployment benefits which could have been spent on improving the economy
• Government receives less income tax

Question 5

Name and state characteristics 4 stages of a business cycle an economy goes through

Answer 5

Growth:

• Positive outlook
• Increased expansion and start-ups
• Rising GDP
• Increased employment rates
• Increased spending as people have higher disposable income

Boom:

• Increased spending leads to higher prices, thus risky, may lead to decline
• Low unemployment rates as people have most positions able to fill in
• Highest amount of GDP
• Business generating profits and expanding

Recession:

• Lower expansion and start-ups
• Decreasing employment rates
• Less spending leading to poorer quality of life due to job uncertainty
• Lower GDP

Slump:

• Long-term, serious recession
• High unemployment rates
• Less business due to lower spending
• Low GDP

Question 6

Name 3 policies a government implements to increase economic activity

Answer 6

1. Fiscal policy: Taxes, placed by government, to be spent on public services
2. Monetary policy: Includes interest rates, money supply and currency fluctuations
3. Supply side policy: Policy to increased competition compared to other economies

Question 7

Define and state characteristics type of direct and indirect taxes

Answer 7

Direct taxes:

• Income tax: tax on one’s income. Whats left after tax is disposable income
• Corporate tax: tax on a business’s profits

Indirect taxes: (tax on price of g/s, before purchase)

• VAT: tax on value added on g/s
• Import tariffs: tax on imports
• Sales tax: for final consumers, tax on sales
• Excise duty: tax, for manufacturers, only varying goods

Question 8

Define and state characteristics of high interest rates

Answer 8

Interest rates: costs incurred when borrowing and reward for saving

Characteristics of high interest rates:

• Lower profit generated
• Less borrowing
• Less disposable income leading to lower demands
• Slower economic growth so lower employment and GDP
• Appreciation leads to lower exports