External Influences-STEEPLE-economics Flashcards
1
Q
What does GDP stand for?
A
Gross Domestic Product
2
Q
What is GDP?
A
The total value of output produced in an economy in a year
3
Q
What services are included in GDP?
A
Cars
Roadworks
Healthcare
House repairs
4
Q
What happens if GDP goes down?
A
The economy is shrinking
5
Q
What are the 2 impacts of GDP going down?
A
Job cuts
Falling house prices
6
Q
What happens if GDP rises?
A
The economy is expanding/growing
7
Q
What are the 2 impacts of a rise in GDP?
A
More wealth
Increased jobs
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
9
Q
What is economic growth?
A
The annual % change in GDP
10
Q
How do u calculate economic growth?
A
Difference/original x100
11
Q
What do positive figures in economic growth mean?
A
Growth
12
Q
What do negative figures in economic growth show?
A
Shrinking
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
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
15
Q
What is 1 factor that GDP doesn’t measure?
A
Our well-being
16
Q
Define standard of living
A
The amount of goods and services a person can buy with their income in a year
17
Q
Define inflation
A
Persistent general tendency of prices in the economy to rise
18
Q
Define Consumer Price Index (CPI)
A
A measure that examines the weighted average of prices of a basket of consumer good/services
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
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
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
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
23
Q
Define exchange rates
A
The value of one currency in terms of another
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
25
What is a weakening exchange rate and what does it cause(foreign currency)?
If pound decreases in value its said to weaken
| Means that a pound will buy less of a foreign currency
26
What is an import?
A sale leading to money going out of the UK
27
What is an export?
A sale leading to money going into the UK
28
What does SPICED stand for?
```
Strong
Pound
Imports
Cheap
Exports
Dear
```
29
According to SPICED what happens to exports if the pound is weak?
Cheaper exports
30
According to SPICED what happens to imports if the pound is weak?
Imports dearer
31
What are 3 long term strategies used for exchange rates?
Change suppliers of raw materials to domestic suppliers
Increase prices
Focus on exports-selling more to European customers
32
What are 3 short term strategies used for exchange rates?
Do nothing-accept lower mark up
Cut other overheads-broadband, electricity...
Zero hour contracts to lower costs
33
What 3 factors influence demand and value of the pound?
Foreign investment in the UK
Hot Money flowing into the UK
Desire of foreign customers to buy UK exports
34
How does the factor foreign investment in the UK affect demand and value for the pound?
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
35
How does the factor Hot Money flowing into the UK affect demand and value for the pound?
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
36
How does the factor desire of foreign customers to buy UK exports affect demand and value for the pound?
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
37
What are interest rates?
The reward for saving and the cost of borrowing expressed as a %of the money saved or borrowed
38
Who sets the base rate of interest?
The Bank of England also known as Monetary Policy Committee (MPC)
39
What does a reduction in interest rate have on a business paying back a loan for new machinery?
Pay back less on a loan
| More money available to pay employees or buy more goods/raw materials
40
What would a reduced interest rate impact on borrowers with loan and credit debt?
Wouldn’t have to pay back a higher amount
More willing to borrow
Spend that loan amount more
41
What would a reduced interest rate impact on savers?
Wouldn’t bother saving as they don’t gain as much
| More tempted to spend more
42
What impact does a high interest rate have on a business?
Higher loan repayments
Less spending
Decreased sales
Less expansion
43
What impact does a high interest rate have on a borrowers?
Higher repayments
| Less disposable income
44
What impact does a high interest rate have on a savers?
Less spending
| Saves more
45
What is demand pull inflation?
Change in demand
46
What is demand push inflation?
Change in costs
47
What happens to the pound and why if interest rates are high?
High interest rate-strong pound-sterling is in high demand due to increased hot money
48
What happens to the pound and why if interest rates are low?
Low interest rate-weak pound-sterling suffers decreased demand as hot money decreases
49
What happens to imports and exports if the pound weak?
Imports-expensive
| Exports-cheap
50
If interest rates increase what does it cause businesses to do(investments)?
Invest less as they’ll have to pay more on loans
51
If GDP increases how does it affect unemployment rates?
Rates decrease so employment increases
| Spending more-demanding more-more jobs
52
Define unemployment
A situation in which people who are willing and able to find work aren’t able to find employment
53
What is unemployment a waste of?
Human Resources
54
What is unemployment bad for?
Society
55
A low level of unemployment leads to what for the government?
More tax revenue
56
How does unemployment affect the individual?
Damages self-esteem-may lead to crime/drug abuse...
| Doesn’t help them get back into work-may cost gov money
57
How does GDP and employment link together?
Higher levels of employment leads to increased GDP through greater output, causing a growth in the economy
58
What is the balance of payment/trade?
The difference between the value of exports and imports
59
What happens if exports exceed imports?
There’s a balance of trade surplus
60
What happens if imports exceed exports?
There’s a balance of trade deficit
61
What’s the equation for trade deficit?
Imports-exports
62
What’s the equation for trade surplus?
Exports-imports
63
What are the 4 factors favourable for a rising value of exports?
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
Define tax
A payment to the government
65
Define direct tax
Taxes on income and profits paid directly by the bearer to the tax authorities
66
Define indirect tax
Taxes on expenditure/spending paid to tax authorities not by the consumer, but indirectly by the suppliers of the goods/services
67
Give some examples of taxes
```
VAT
National insurance
Income tax
Flight duty
Council tax
```
68
Define income tax in UK and affect on demand
Tax taken out of a person’s income
In UK income tax is progressive
Less demand for inferior products
69
What is national insurance and who does it effect?
Tax taken as a contribution towards the state pension and treatment under the NHS
Employers, employees...
70
What does VAT stand for?
Value added tax
71
How is VAT collected?
Via customers through goods and service to pass onto HMRC
| Included in price
72
How does a business benefit from being VAT registered?
They can charge and reclaim VAT
73
What is the standard rate of VAT?
20%
74
Define corporation tax
Tax on profits made by companies
75
Who does and doesn’t pay corporation tax?
Does-limited companies(incorporated)
| Doesn’t-sole traders and partnerships
76
What is tax on products often referred to?
Duties and exercises
77
Give 3 examples of indirect taxes
VAT
Tobacco/alcohol/petrol tax
Stamp duty
78
Give 3 examples of direct taxes
National insurance
Corporation tax
Income tax
79
What are the three purposes of taxation?
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
Give some examples of gov expenditure
Healthcare
Education
Public order/safety
Transport
81
Define a subsidy and its effects
Payments by the government to suppliers
| Increases supply of particular goods
82
What are 5 benefits of subsidies?
```
Deceases prices
Encourages consumption of goods
Helps business survival(during start up periods)
Helps declining industries
Boosts demand during recessions
```
83
Define monetary policy and who controls it
Manipulation of the level of demand in the economy using the rate of interest
Controlled by MPC
84
What are the 4 points made about the monetary policy?
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
Define fiscal policy and who controls it
An economic policy conducted by the government through taxation and public spending
Controlled by gov but led by Chancellor of the Exchequer
86
What are the 4 points made about the fiscal policy?
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
Define multiplier effect
Effect of changes in economic activity in one sector on other sectors
(Knock on effects)
88
Define supply-side policies and give some examples
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
What does a cut in corporation tax do to a business?
Business retains more profits that could be used on staff training
Increases output and sales
90
What does investment in education/training do to a business?
More experienced/skilled workers...
| Increases output-increases need for supply
91
What does removing unnecessary/expensive business regulation do to a business?
More able to reduce costs from the regulations/more freedom on choices
Increases need of supply for products being sold
92
What do supply-side policies intend to do?
Increase the output of an economy
93
What do supply-side policies lead to?
An economy where employees are skilled and incentivised to work and businesses are able to invest
94
Define the business/economic cycle
Observed pattern of increases and decreases in economic growth(% change in GDP)over the long term
95
What are the 4 stages of the business cycle?
Boom
Recession
Slump
Recovery
96
What happens to confidence, spending, income, unemployment, inflation and investment during a boom?
```
Confidence=high/optimistic
Spending=low but high borrowing
Income=high
Unemployment=low-skills shortage
Inflation=high
Investment=high-firms expanding
```
97
What happens to confidence, spending, income, unemployment, inflation and investment during a recession?
```
Confidence=low
Spending=low but less borrowing and more saving
Income=decreasing
Unemployment=increasing
Inflation=decreasing
Investment=low-only essential
```
98
What happens to confidence, spending, income, unemployment, inflation and investment during a slump?
```
Confidence=low/pessimistic
Spending=low-paying off debts instead
Income=low
Unemployment=increasing-skills surplus
Inflation=low/stable
Investment=none
```
99
What happens to confidence, spending, income, unemployment, inflation and investment during a recovery?
```
Confidence=increasing
Spending=increasing
Income=increasing slowly
Unemployment=decreasing slowly
Inflation=increasing slightly/stable
Investment=only essential
```
100
On the business cycle graph which is change in GDP and time
Change in GDP=vertical(Y axis)
| Time=horizontal(X axis)
101
Is a recession bad for all businesses?
No
102
Why might firms cut back on investment?
Less finance available(credit crunch)
Lower returns from investment likely
Precaution-conserve cash
103
How might businesses respond to a recession/slump?
Redundancies
Intense promotional activity
Cut backs on production
Less stock holding
104
What can a MPC do to help en economy recover?
They can decrease the rate of interest-this should help encourage businesses to invest more and encourages spending
