External Influences - Economic Factors

Question 1

Define GDP

Answer 1

GDP is the total value of output produced by an economy in a year

Question 2

Define economic growth

Answer 2

Economic growth is the annual percentage change in GDP

Question 3

What happpens if GDP decreases

Answer 3

The economy shrinks

Question 4

Name 2 impacts of a shrinking economy

Answer 4

1. Job cuts

2. Fall in house prices

Question 5

What happens if GDP is increasing

Answer 5

The economy is expanding

Question 6

Name 2 impacts of an expanding economy

Answer 6

1. More jobs available

2. House prices increase

Question 7

Name 3 ways that the GVMT increase GDP

Answer 7

1. Subsidises production
2. Increase spending on education
3. Improve infalstructure

Question 8

Name ways in which a businesses can increase GDP

Answer 8

1. Invest in training

2 invest in better capital

Question 9

Define standard of living

Answer 9

The amount of goods and services a person can buy in a year with their income

Question 10

Define inflation

Answer 10

Inflation is the persistent general tendency of prices in an economy to rise

Question 11

Define consumer price index (CPI)

Answer 11

CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services

Question 12

Name 3 impacts of inflation

Answer 12

1. Uk exports become more uncompetitive
2. Reduce investment into uk business as want to invest in cheap FOP countries
3. Uncertanty of profits value with inflation

Question 13

Define exchange rate

Answer 13

Exchange rate is the value of one currency in terms of another

Question 14

What does strengthening of the pound mean

Answer 14

The pound increases in value and can buy more of another currency

Question 15

What does weakening of the pound mean

Answer 15

The pound loses value and will buy less foreign currency

Question 16

Define an import

Answer 16

An import is a purchase that leads to money leaving the UK

Question 17

Define what an export is

Answer 17

An export is a purchase that leads to money entering the UK

Question 18

Name the 3 determinants of the demand for the pound

Answer 18

1. Amount of foreign investment in to uk
2. Desire for uk exports
3. Hot money (uk interest rates)

Question 19

Define interest rates

Answer 19

Interest rates the reward for saving and the cost of borrowing and is expressed as a percentage of the money borrowed/saved

Question 20

How does interest rates effect inflation

Answer 20

MPC raises interest rates so people incentivised to save so less demand for products so firms decrease sale cost to try increase sales

Question 21

How do interest rates effect the value of the pound

Answer 21

A rise in interest rates causes foreign investors to save money in UK banks as they get a better return so the demand for the pound increases and so the pound strengthens

Question 22

Define unemployment

Answer 22

Unemployment is a situation in which people who are willing and able to find work are not able to find employment

Question 23

Name 3 reasons why the government wants low unemployment rates

Answer 23

1. Lower unemployment leads to more tax revenue
2. High unemployment is a waste of tax revenue
3. If low unemployment then GDP increases

Question 24

Define balance of payments

Answer 24

BofP is the difference in value of exports and imports

Question 25

What are the two main reasons for taxation

Answer 25

1. Government revenue

2. To encourage and discourage purchases of certain goods/services

Question 26

Define what an indirect tax is

Answer 26

An indirect tax is a tax paid on expenditures

Question 27

Define what a direct tax is

Answer 27

A direct tax is a tax paid on income and profits

Question 28

Define income tax

Answer 28

Income tax is taken out of the person’s income and is progessive and only the earner pays

Question 29

Define national insurance

Answer 29

National insurance is a tax taken from income that is a contribution towards state pension, treatment and NHS and both the employer and earner pay

Question 30

Define stamp duty

Answer 30

Stamp duty is a tax paid on the purchase of property

Question 31

Define what a subsidy is

Answer 31

A subsidy is a sum of money paid from the GVMT to a business to help increase the production of certain goods/services

Question 32

Name 3 benefits of subsidies to a business

Answer 32

1. Lower COP
2. Lowers selling point so demand increases
3. Helps business survive the start up costs

Question 33

Define multiplier effect

Answer 33

Where an impact in one sector has a large impact in other sectors