INTRODUCTION TO THE ECONOMIC ENVIRONMENT Flashcards
What does the economic environment consider
The economic environment considers the impact of economic factors on the consumption behaviour and production behaviour of individuals (households and individuals), firms and governments, as well as economic agents abroad.
What is consumption
Households give money to businesses in return for goods and services, that’s called consumption.
What are factor payments
Businesses give money to households - VIA FACTOR PAYMENTS
What are some factor payments
They pay them rent - If they are using a building
They pay them wages in exchange for their labour
They pay them dividends if they are a shareholder
What is generally considerd a good thing when this process repeats
The more that this happens and the more money households get, which is generally considered a good thing
What is it called when households give money to banks
Households give money to banks, and that’s called savings.
What are some examples of things that banks can put households money into
Banks can put money back into the economy - For example when businesses borrow money to buy a new factory, or launch a new product, or any other reasonable investment. This is called investment.
How does the government get money from households, and how does the government invest that money
The government taxes money from households (taxation) and invests it into organisations for the public like: Schools, emergency services etc.
What are exports and imports
Money that goes abroad (import) The good comes in but the money comes out - The arrow going out represents the money leaving the household. When people outside of the UK purchase from us, the businesses receive payment, which is called export - the arrow represents the money going back into the businesses.
What is money leaving the economy called
Money leaving the economy is called ‘withdrawals’
What is money coming into the economy called
Money coming into the economy is call ‘injections’
What are the 4 main objectives the givernment had in relation to the economy
Economic growth - Economic growth is an increase in output or productive capacity of an economy measured by GDP
Minimising unemployment - Unemployment measures the number of people who are willing and able to work but can’t find a job
Price stability - Inflation is a sustainable rise in the price average prices measured by CPI
The balance of payments - The balance of payments measures the value of exports minus imports and is a record of economic transactions between one country and other countries.
What is the policy objective of economic growth
High and sustainable economic growth - What’s meant by high is dependant on the country
What is the policy objective of minimisung unemployment
Full employment
What is the policy objective of price stability
Low & stable inflation (2% + or - 1%). The government doesn’t want there to be 0% inflation - it doesn’t want complete price stability. - So that there is still growth
