External Influences - Economic Factors Flashcards
Define GDP
GDP is the total value of output produced by an economy in a year
Define economic growth
Economic growth is the annual percentage change in GDP
What happpens if GDP decreases
The economy shrinks
Name 2 impacts of a shrinking economy
- Job cuts
2. Fall in house prices
What happens if GDP is increasing
The economy is expanding
Name 2 impacts of an expanding economy
- More jobs available
2. House prices increase
Name 3 ways that the GVMT increase GDP
- Subsidises production
- Increase spending on education
- Improve infalstructure
Name ways in which a businesses can increase GDP
- Invest in training
2 invest in better capital
Define standard of living
The amount of goods and services a person can buy in a year with their income
Define inflation
Inflation is the persistent general tendency of prices in an economy to rise
Define consumer price index (CPI)
CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services
Name 3 impacts of inflation
- Uk exports become more uncompetitive
- Reduce investment into uk business as want to invest in cheap FOP countries
- Uncertanty of profits value with inflation
Define exchange rate
Exchange rate is the value of one currency in terms of another
What does strengthening of the pound mean
The pound increases in value and can buy more of another currency
What does weakening of the pound mean
The pound loses value and will buy less foreign currency
Define an import
An import is a purchase that leads to money leaving the UK
Define what an export is
An export is a purchase that leads to money entering the UK
Name the 3 determinants of the demand for the pound
- Amount of foreign investment in to uk
- Desire for uk exports
- Hot money (uk interest rates)
Define interest rates
Interest rates the reward for saving and the cost of borrowing and is expressed as a percentage of the money borrowed/saved
How does interest rates effect inflation
MPC raises interest rates so people incentivised to save so less demand for products so firms decrease sale cost to try increase sales
How do interest rates effect the value of the pound
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
Define unemployment
Unemployment is a situation in which people who are willing and able to find work are not able to find employment
Name 3 reasons why the government wants low unemployment rates
- Lower unemployment leads to more tax revenue
- High unemployment is a waste of tax revenue
- If low unemployment then GDP increases
Define balance of payments
BofP is the difference in value of exports and imports
What are the two main reasons for taxation
- Government revenue
2. To encourage and discourage purchases of certain goods/services
Define what an indirect tax is
An indirect tax is a tax paid on expenditures
Define what a direct tax is
A direct tax is a tax paid on income and profits
Define income tax
Income tax is taken out of the person’s income and is progessive and only the earner pays
Define national insurance
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
Define stamp duty
Stamp duty is a tax paid on the purchase of property
Define what a subsidy is
A subsidy is a sum of money paid from the GVMT to a business to help increase the production of certain goods/services
Name 3 benefits of subsidies to a business
- Lower COP
- Lowers selling point so demand increases
- Helps business survive the start up costs
Define multiplier effect
Where an impact in one sector has a large impact in other sectors
