Economics term 1

Question 1

Definition of macroeconomic objectives

Answer 1

macroeconomic objectives: Aims that a government wants to achieve

Question 2

Define inflation.

Answer 2

Inflation is the rise of prices of goods and services in an economy

Question 3

What are the macroeconomic economic objectives?

Answer 3

have low unemployment rates
protect the environment
increase economic growth
stabilise inflation
have a positive balance of payments

Question 4

What is GDP? And what does it stand for?

Answer 4

GDP (gross domestic product) measures economic growth by looking at a countries income over a certain amount of time (usually one year)

Question 5

What are the limitations of GDP?

Answer 5

Population changes: population growth must be taken into account for when analyzing growth. If GDP increases that doesn’t mean that people are better off.

Income distribution gap: the difference between a high-income earner and a low-income earner.

Inflation: price increases are not taken into account

Living standards: does not measure living standards

Question 6

How do you calculate a percentage change?

Answer 6

Difference(original and new)
——————————————-x 100
original

Question 7

What are the factors that can affect the supply of goods?

Answer 7

Changes in technology
Subsidies
Price
Cost of production
Indirect taxes

Question 8

What is a subsidy?

Answer 8

Subsidies are grants given by the government to businesses in order to reduce costs and red tape.

Question 9

What is a policy instrument?

Answer 9

Tools a government uses to help achieve their economic objectives.

Question 10

What is an economic policy?

Answer 10

The different types of actions taken by a government when controlling the economy.

Question 11

Define Fiscal Policy.

Answer 11

Fiscal policies involve using taxation and government expenditure to influence aggregate demand.

Question 12

define Monetary policies.

Answer 12

Using policy instruments like interest rates to influence aggregate demand.

Question 13

List some types of government expenditure.

Answer 13

education
social security
transport
industries

Question 14

What is the current account?

Answer 14

Where all exports and imports are recorded

Question 15

What is the balance of trade?

Answer 15

The trade between visible imports and visible exports.

Question 16

What are the main types of unemployment?

Answer 16

Technological unemployment
Seasonal unemployment
Frictional unemployment
cyclical unemployment

Question 17

What are some types environmental taxation?

Answer 17

Aggregate levy: Tax on rocks, sand, and gravel that are dug up
Landfill tax: added on the disposal of waste in landfill sites.

Question 18

What are some types of direct taxes?

Answer 18

Income tax: tax taken from a persons income
National insurance contributions: Like income tax but used specifically for pensions, benefits and the NHS
Corporation tax: Taken from the profits made by limited companies like partnerships and sole traders.

Question 19

What are some types of indirect taxes?

Answer 19

VAT: main tax on spending in the UK
Custome duties: tax added on imports
Vehicle excise duty: Paid by the owners of vehicles
Duties; heavy taxes on alcohol and tobacco.

Question 20

What are the effects of Inflation?

Answer 20

• Discourages foreign investment
• increases government spendings
• increases unemployment
• Workers demand higher income

Question 21

What is a mixed economy?

Answer 21

It has both private and public sectors.

Question 22

What is PED?

Answer 22

It measures the responsiveness of demand to a change in price.

Question 23

How do you calculate PED?

Answer 23

% change in price

Question 24

What is income elasticity of demand (YED)?

Answer 24

It is the responsiveness of demand to a change of income

Question 25

What is international trade?

Answer 25

International trade is the exchange of goods and services overseas between countries.

Question 26

What are some advantages of international trade?

Answer 26

- Allows countries to obtain goods that cannot be produced domestically - Obtaining goods that can be bought more cheaply overseas rather than producing them (could be due to specialization or cheap labor force) - Improves customer choice

Question 27

What are some disadvantages of international trade (same for free trade)?

Answer 27

- can cause overspecialization (rely on trade too much) - increases global warming - May cause unemployment when demand patterns change

Question 28

What is free trade?

Answer 28

This is when governments open access to the markets in its countries. No restrictions are placed on goods coming in and out.

Question 29

What is protectionism?

Answer 29

Measures taken by the government in order to decrease/restrict trade.

Question 30

Why would a government use protectionism?

Answer 30

- Protect jobs: If they needed protection from overseas competitors to save jobs - Preventing the entry of demerit goods: prevent goods that may harm people - Prevent dumping: selling overseas products at an extremely low price so that domestic goods have lower demand. - Improving the current balance: Encourages consumers to buy domestic goods

Question 31

What are the types of protectionism?

Answer 31

- Tariffs: taxes put on imports - Administrative barriers: Strict barriers to entry, an increase of red tape, strict safety and health regulations - Quotas: limit on the amount allowed into the country - Subsidies: money given to domestic firms in order to decrease costs= selling at a lower price.

Question 32

What are the problems associated with protectionism?

Answer 32

- Retaliation from other countries, a trade war - loss of free trade benefits: consumers will end up paying more for the goods/services - limit on choices: there will be fewer choices available for consumers - other policies may be more effective: like supply-side policies

Question 33

What are some supply-side policies?

Answer 33

- privatization: transfers a business from the public sector to the private sector - deregulation: 'red tape'- a lot of business legal paperwork - improve flexibility in labor markets and restore the incentives to work

Question 34

What are supply-side policies?

Answer 34

Used to help increase AS (aggregate supply) in an economy.

Question 35

What is globalization?

Answer 35

The growing integration of the world's economies.

Question 36

What factors have allowed for globalization?

Answer 36

- Better technology: Online shopping, E commer (online retail) and ICT. B2B- business to business B2C business to consumer - Deregulation: fewer barriers allow for more trade and expansion of companies - Better infrastructure: roads, rail, and air have improved and it is cheaper to fly goods/services overseas. - Saturated economies: they benefit where economies (international) where costs are minimized

Question 37

What is a multinational company?

Answer 37

Large and powerful firms that sell goods and services to global markets, own production plants and have facilities globally.

Question 38

FDI:

Answer 38

When a company makes investments in a foreign country, eg McDonalds.

Question 39

What are some factors that encourage FDI'S?

Answer 39

- investments in infrastructure - offering tax breaks, subsidies, and grants - lifting red tape - investments in education (higher skilled workers)

Question 40

What are exchange rates?

Answer 40

The value of one currency compared to another

Question 41

What are exchange rates determined by?

Answer 41

Market forces (demand and suppy)

Question 42

What are the factors that affect the demand for a currency?

Answer 42

- Demand for exports: as exports increase the demand for that currency will also increase - inward foreign direct investment: as countries come inward yo invest the demand for that currency will increase - interest rates: as interest rates increase more firms will be encouraged to save money in those banks, increasing the demand for the currency

Question 43

What are the factors that affect the supply of a currency?

Answer 43

- outward foreign direct investment: if certain British multinationals develop British interest rates abroad, such as building their shops abroad, the supply of the British currency will increase - interest rates: if the interest rates are higher in other countries the supply, savers in one country may choose to save their money in other countries, decreasing the supply of that currency - the demand for imports: imported goods and services must be bought with a foreign currency

Question 44

What is the impact of a rising exchange rate on exports?

Answer 44

The demand for exports is likely to fall because they are now dearer

Question 45

What is the impact of a rising exchange rate on imports?

Answer 45

The demand for imports will rise the goods are now cheaper

Question 46

What is a negative externality?

Answer 46

A negative externality is a spillover of an economic transaction that negatively impacts a party that is not directly involved in the transaction

Question 47

What is economies of scale

Answer 47

It is when average costs decrease as a business grows