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Business-Miss Blackwell > External Influences-STEEPLE-economics > Flashcards

External Influences-STEEPLE-economics Flashcards

1
Q

What does GDP stand for?

A

Gross Domestic Product

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2
Q

What is GDP?

A

The total value of output produced in an economy in a year

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3
Q

What services are included in GDP?

A

Cars
Roadworks
Healthcare
House repairs

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4
Q

What happens if GDP goes down?

A

The economy is shrinking

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5
Q

What are the 2 impacts of GDP going down?

A

Job cuts

Falling house prices

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6
Q

What happens if GDP rises?

A

The economy is expanding/growing

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7
Q

What are the 2 impacts of a rise in GDP?

A

More wealth

Increased jobs

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8
Q

What is the limitation of GDP?

A

It’s like a rear view mirror-tells us what’s already happened not what’s going to happen

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9
Q

What is economic growth?

A

The annual % change in GDP

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10
Q

How do u calculate economic growth?

A

Difference/original x100

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11
Q

What do positive figures in economic growth mean?

A

Growth

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12
Q

What do negative figures in economic growth show?

A

Shrinking

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13
Q

What are 4 government strategies used to improve economic growth?

A

Encourage investment by offering subsidies or lowering tax
Improve infrastructure through better transport links
Investment in roads etc.-increasing goods made, sold and delivered
Investing in education-improving quality of human capital

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14
Q

What are type 3 impacts of high GDP/a growing economy?

A

High income
High standard of living
Earning/spending more
Greater employment

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15
Q

What is 1 factor that GDP doesn’t measure?

A

Our well-being

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16
Q

Define standard of living

A

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

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17
Q

Define inflation

A

Persistent general tendency of prices in the economy to rise

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18
Q

Define Consumer Price Index (CPI)

A

A measure that examines the weighted average of prices of a basket of consumer good/services

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19
Q

What causes inflation?

A

Cost of wages
Cost of production and supply
Demand increases (quickly)-increases demand for raw materials+need for extra space
Short supply

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20
Q

What does high inflation make UK exports and why?

A

Uncompetitive-price of exports increase as inflation increases so the goods look less desirable to foreign buyers

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21
Q

What does inflation do to multinational investment in the UK and why?

A

Reduces it-people look for cheapest places of production so UK would look less desirable as they’d be more expensive

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22
Q

What does high inflation create around profits and why?

A

Uncertainty-managers may be uncertain on profit amount due to inflation changes, so can’t plan investments

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23
Q

Define exchange rates

A

The value of one currency in terms of another

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24
Q

What is a strengthening exchange rate and what does it cause(foreign currency)?

A

If the pound increases in value its said to strengthen

Means that a pound will buy more of a foreign currency

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25
Q

What is a weakening exchange rate and what does it cause(foreign currency)?

A

If pound decreases in value its said to weaken

Means that a pound will buy less of a foreign currency

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26
Q

What is an import?

A

A sale leading to money going out of the UK

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27
Q

What is an export?

A

A sale leading to money going into the UK

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28
Q

What does SPICED stand for?

A 
Strong
Pound 
Imports
Cheap
Exports
Dear
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29
Q

According to SPICED what happens to exports if the pound is weak?

A

Cheaper exports

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30
Q

According to SPICED what happens to imports if the pound is weak?

A

Imports dearer

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31
Q

What are 3 long term strategies used for exchange rates?

A

Change suppliers of raw materials to domestic suppliers
Increase prices
Focus on exports-selling more to European customers

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32
Q

What are 3 short term strategies used for exchange rates?

A

Do nothing-accept lower mark up
Cut other overheads-broadband, electricity…
Zero hour contracts to lower costs

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33
Q

What 3 factors influence demand and value of the pound?

A

Foreign investment in the UK
Hot Money flowing into the UK
Desire of foreign customers to buy UK exports

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34
Q

How does the factor foreign investment in the UK affect demand and value for the pound?

A

Any foreign business wishing to build a factory/office in UK have to have its own currency to demand pound to then pay the UK construction companies

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35
Q

How does the factor Hot Money flowing into the UK affect demand and value for the pound?

A

Money that flows from country to another in search of the highest rate of interest. If the UK rates were higher, foreign banks will use their currency to demand pounds to then deposit them in the UK banks

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36
Q

How does the factor desire of foreign customers to buy UK exports affect demand and value for the pound?

A

If a UK firm sells clothes to a foreign buyer it wants to be paid in pounds not euros-they don’t want to exchange the money so foreign customers must use their currency to demand pounds to pay the UK exporter

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37
Q

What are interest rates?

A

The reward for saving and the cost of borrowing expressed as a %of the money saved or borrowed

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38
Q

Who sets the base rate of interest?

A

The Bank of England also known as Monetary Policy Committee (MPC)

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39
Q

What does a reduction in interest rate have on a business paying back a loan for new machinery?

A

Pay back less on a loan

More money available to pay employees or buy more goods/raw materials

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40
Q

What would a reduced interest rate impact on borrowers with loan and credit debt?

A

Wouldn’t have to pay back a higher amount
More willing to borrow
Spend that loan amount more

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41
Q

What would a reduced interest rate impact on savers?

A

Wouldn’t bother saving as they don’t gain as much

More tempted to spend more

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42
Q

What impact does a high interest rate have on a business?

A

Higher loan repayments
Less spending
Decreased sales
Less expansion

43
Q

What impact does a high interest rate have on a borrowers?

A

Higher repayments

Less disposable income

44
Q

What impact does a high interest rate have on a savers?

A

Less spending

Saves more

45
Q

What is demand pull inflation?

A

Change in demand

46
Q

What is demand push inflation?

A

Change in costs

47
Q

What happens to the pound and why if interest rates are high?

A

High interest rate-strong pound-sterling is in high demand due to increased hot money

48
Q

What happens to the pound and why if interest rates are low?

A

Low interest rate-weak pound-sterling suffers decreased demand as hot money decreases

49
Q

What happens to imports and exports if the pound weak?

A

Imports-expensive

Exports-cheap

50
Q

If interest rates increase what does it cause businesses to do(investments)?

A

Invest less as they’ll have to pay more on loans

51
Q

If GDP increases how does it affect unemployment rates?

A

Rates decrease so employment increases

Spending more-demanding more-more jobs

52
Q

Define unemployment

A

A situation in which people who are willing and able to find work aren’t able to find employment

53
Q

What is unemployment a waste of?

A

Human Resources

54
Q

What is unemployment bad for?

A

Society

55
Q

A low level of unemployment leads to what for the government?

A

More tax revenue

56
Q

How does unemployment affect the individual?

A

Damages self-esteem-may lead to crime/drug abuse…

Doesn’t help them get back into work-may cost gov money

57
Q

How does GDP and employment link together?

A

Higher levels of employment leads to increased GDP through greater output, causing a growth in the economy

58
Q

What is the balance of payment/trade?

A

The difference between the value of exports and imports

59
Q

What happens if exports exceed imports?

A

There’s a balance of trade surplus

60
Q

What happens if imports exceed exports?

A

There’s a balance of trade deficit

61
Q

What’s the equation for trade deficit?

A

Imports-exports

62
Q

What’s the equation for trade surplus?

A

Exports-imports

63
Q

What are the 4 factors favourable for a rising value of exports?

A

Weak pound-more favourable to foreign customers not investment
Low/stable inflation-UK price more competitive
Attractiveness of product-quality etc…
Trade deals-free trade stops customers paying tariffs

64
Q

Define tax

A

A payment to the government

65
Q

Define direct tax

A

Taxes on income and profits paid directly by the bearer to the tax authorities

66
Q

Define indirect tax

A

Taxes on expenditure/spending paid to tax authorities not by the consumer, but indirectly by the suppliers of the goods/services

67
Q

Give some examples of taxes

A 
VAT
National insurance 
Income tax 
Flight duty 
Council tax
68
Q

Define income tax in UK and affect on demand

A

Tax taken out of a person’s income
In UK income tax is progressive
Less demand for inferior products

69
Q

What is national insurance and who does it effect?

A

Tax taken as a contribution towards the state pension and treatment under the NHS
Employers, employees…

70
Q

What does VAT stand for?

A

Value added tax

71
Q

How is VAT collected?

A

Via customers through goods and service to pass onto HMRC

Included in price

72
Q

How does a business benefit from being VAT registered?

A

They can charge and reclaim VAT

73
Q

What is the standard rate of VAT?

A

20%

74
Q

Define corporation tax

A

Tax on profits made by companies

75
Q

Who does and doesn’t pay corporation tax?

A

Does-limited companies(incorporated)

Doesn’t-sole traders and partnerships

76
Q

What is tax on products often referred to?

A

Duties and exercises

77
Q

Give 3 examples of indirect taxes

A

VAT
Tobacco/alcohol/petrol tax
Stamp duty

78
Q

Give 3 examples of direct taxes

A

National insurance
Corporation tax
Income tax

79
Q

What are the three purposes of taxation?

A

To raise large amounts of revenue for the gov to spend on public services
To control economic activity
To influence expenditure on certain items

80
Q

Give some examples of gov expenditure

A

Healthcare
Education
Public order/safety
Transport

81
Q

Define a subsidy and its effects

A

Payments by the government to suppliers

Increases supply of particular goods

82
Q

What are 5 benefits of subsidies?

A 
Deceases prices 
Encourages consumption of goods 
Helps business survival(during start up periods)
Helps declining industries 
Boosts demand during recessions
83
Q

Define monetary policy and who controls it

A

Manipulation of the level of demand in the economy using the rate of interest
Controlled by MPC

84
Q

What are the 4 points made about the monetary policy?

A

Increased rate of interest slows down spending
Deceased rate of interest encourages spending
Changed interest rate takes about 18months to take effect
There’s a relationship between rate of interest and strength of pound

85
Q

Define fiscal policy and who controls it

A

An economic policy conducted by the government through taxation and public spending
Controlled by gov but led by Chancellor of the Exchequer

86
Q

What are the 4 points made about the fiscal policy?

A

Affects level of demand in an economy
Increased tax generally leads to less spending
Deceased tax generally leads to more spending
Gov spending can influence the level of demand eg.subsidies

87
Q

Define multiplier effect

A

Effect of changes in economic activity in one sector on other sectors
(Knock on effects)

88
Q

Define supply-side policies and give some examples

A

Polices aimed to improve the economy’s overall(output)productive capacity-rather than demand side
Cuts in corporation tax
Investment in education/training
Removing expensive/unnecessary business regulations

89
Q

What does a cut in corporation tax do to a business?

A

Business retains more profits that could be used on staff training
Increases output and sales

90
Q

What does investment in education/training do to a business?

A

More experienced/skilled workers…

Increases output-increases need for supply

91
Q

What does removing unnecessary/expensive business regulation do to a business?

A

More able to reduce costs from the regulations/more freedom on choices
Increases need of supply for products being sold

92
Q

What do supply-side policies intend to do?

A

Increase the output of an economy

93
Q

What do supply-side policies lead to?

A

An economy where employees are skilled and incentivised to work and businesses are able to invest

94
Q

Define the business/economic cycle

A

Observed pattern of increases and decreases in economic growth(% change in GDP)over the long term

95
Q

What are the 4 stages of the business cycle?

A

Boom
Recession
Slump
Recovery

96
Q

What happens to confidence, spending, income, unemployment, inflation and investment during a boom?

A 
Confidence=high/optimistic 
Spending=low but high borrowing 
Income=high
Unemployment=low-skills shortage 
Inflation=high 
Investment=high-firms expanding
97
Q

What happens to confidence, spending, income, unemployment, inflation and investment during a recession?

A 
Confidence=low 
Spending=low but less borrowing and more saving 
Income=decreasing
Unemployment=increasing  
Inflation=decreasing 
Investment=low-only essential
98
Q

What happens to confidence, spending, income, unemployment, inflation and investment during a slump?

A 
Confidence=low/pessimistic 
Spending=low-paying off debts instead 
Income=low 
Unemployment=increasing-skills surplus 
Inflation=low/stable 
Investment=none
99
Q

What happens to confidence, spending, income, unemployment, inflation and investment during a recovery?

A 
Confidence=increasing 
Spending=increasing 
Income=increasing slowly 
Unemployment=decreasing slowly 
Inflation=increasing slightly/stable 
Investment=only essential
100
Q

On the business cycle graph which is change in GDP and time

A

Change in GDP=vertical(Y axis)

Time=horizontal(X axis)

101
Q

Is a recession bad for all businesses?

A

No

102
Q

Why might firms cut back on investment?

A

Less finance available(credit crunch)
Lower returns from investment likely
Precaution-conserve cash

103
Q

How might businesses respond to a recession/slump?

A

Redundancies
Intense promotional activity
Cut backs on production
Less stock holding

104
Q

What can a MPC do to help en economy recover?

A

They can decrease the rate of interest-this should help encourage businesses to invest more and encourages spending

Business-Miss Blackwell (14 decks)

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