External environment: Economic change GDP- 3.75 Flashcards
Economic growth
An increase in the amount of goods and services produced per head of the population over a period of time
The business cycle or economic cycle
The fluctuation in the economic activity that an economy experiences over a period of time. A business cycle is basically designed in terms of periods of booms and slumps
Gross domestic product (GDP)
the monetary value of all finished goods and services produced within a country’s borders is usually within a year
Demand
How much of a good or service a consumer wants- and is able to pay for. For a business, demand turns into revenue (sales)
What is the level of demand influenced by in most markets?
Rate of econmoic growth
What is a “normal” long term growth rate for a mature economy like the UK
long term growth rate of around 2-3%
What are the stages of the business cycle
Boom
recession
slump
recovery
What is a boom in the business cycle
Consumer spending, business confidence, profits and investment - INCREASE
Prices and costs- INCREASE
Unemployment- DECREASE
What is recession?
Consumer spending and confidence- DECREASE
Investment- INCREASE
Spare capacity- Increase
Unemployment- INCREASE
What is slump/ depression
DECREASED consumer spending and investment
INCREASE business failures and unemployment
DECREASE prices
What is recovery/downswing
Things start to get better
Spending and business confidence and investment get- INCREASE
DECREASED unemployment - slowly
The level of economic activity can also be affected by external shocks to an economy like:
Global financial crisis
Eurozone economic crisis
Volatile commodity prices
China slowdown
International trade and investment deals
Currency volatility and policy change
Extreme weather events
Political uncertainty/ terrorism
How do business maintain economic growth- which is one of the several key economic objectives
Price stability
Growth of real GDP
Falling unemployment/ raising employment
Higher average living standard
Stable balance of payments on the current account
An equitable distribution of income and wealth
What is fiscal policy
Involves the use of the government spending, taxation and borrowing to affect the level and growth of aggregate demand, output and jobs (infrastructure)
What is aggregate demand
Is the total demand for the final goods and services in an economy at any given time
What is an interest rate
The reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed
Why does the government tax?
Raise revenue
Market failure and environmental targets
Managing aggregate demand (meet the government objectives)
Changing the distribution of income and wealth
What is direct taxation and examples and can it be predicted
Levied on income, wealth and profit
Eg- income tax, national insurance, capital gains and business rates
Overall effect can be predicted
What are indirect taxes, examples and can it be predicted
Levied on spending by consumers on goods and services
Eg- Excise duties on fuel and alcohol, betting tax and tv licence
Can have a rapid effect and are difficult to predict
What is government spending
Government spending takes up around 40% of annual GDP
What are three main areas of spending of the government
Transfer payments
Current spending
Capital spending
What are transfer payment?
Welfare payments made to benefit people such as pension benefits
What is current spending
Spending on state- provided goods and services such as education and health
What is capital spending
Infrastructure spending such as spending on new roads, hospitals, motorways and prisons
