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external influences > STEEPLE Economic factors > Flashcards

STEEPLE Economic factors Flashcards

1
Q

What does STEEPLE stand for?

A

Social
Technological
Economic
Environmental
Politics
Legal
Ethics

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2
Q

What does GDP stand for?

A

Gross domestic product

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3
Q

What is GDP

A

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

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4
Q

What is economic growth?

A

The annual percentage change in GDP

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5
Q

What is a recession?

A

Two consecutive quarters of negative growth.

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6
Q

What can the government do to facilitate economic growth?

A

Encourage investment in physical capital by offering subsidies or lowering taxation
Improve infrastructure through better transport links - invest in roads ect to inc speed raw materials are delivered
Improve quality of human capita, by investing in education

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7
Q

What happens if GDP goes down?

A

It means the economy is shrinking/ contracting

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8
Q

What happens if GDP rises?

A

The economy is expanding

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9
Q

What does GDP include?

A

The value of:
Cars
Housing
Healthcare
Loans
Mortgages ect

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10
Q

What is the impact or GDP reducing?

A

Decrease in jobs
Falling house prices

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11
Q

What happens if GDP rises?

A

Increase in jobs available
Positive multiplier effect

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12
Q

What does GDP not measure?

A

The well-being of an individual- if GDP increases workers may feel more stress and tiredness

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13
Q

What is inflation?

A

The persistent general tendency of prices in the economy to rise

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14
Q

How is inflation measured?

A

Using the consumer price index

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15
Q

What is the consumer price index?

A

A measure that examines the weighted average of prices of a basket of consumer goods or services

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16
Q

What is disinflation?

A

Inflation but at a slower rate
Eg 2016= 4.2% 2017= 4.1%

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17
Q

What causes inflation?

A

Cost of production eg raw materials (cost push)
If a product is in short supply or high demand (demand pull)
Rising wages (cost push)

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18
Q

What are the two types of causes to inflation?

A

Cost push - substantial increases in cost of important goods or services where no alternative available.
Demand pull - where demand in an eco by if greater than supply.

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19
Q

What are the impacts of high inflation?

A

Makes UK markets uncompetitive - If inflation in the UK is high buyers will look elsewhere where inflation is less and prices are therefore lower.
High inflation can reduce multinational investment - when competitors are looking to produce in different countries they will look for the ones with lower inflation rates.
High inflation creates uncertainty around profits - the value of your profit may be less certain with high inflation so what you started with will be worth less in the future.

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20
Q

What does disinflation mean?

A

Inflation but at a slower rate

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21
Q

What are exchange rates?

A

The value of once current in terms of another

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22
Q

What is a strengthening exchange rate?

A

If the pound increases in value it is said to strengthen. This means the pound will buy more of a foreign currency

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23
Q

What is a weakening pound?

A

If the pound decreases in value it’s said to weaken. This means the pound will buy less of a foreign currency.

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24
Q

SPICED

A

Strong
Pound
Imports
Cheap
Exports
Dear

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25
Q

What’s an import?

A

Money leaving the economy when something is bought buy a UK consumer

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26
Q

What is an export?

A

A sale in the UK meaning money is entering the UK

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27
Q

How to calculate exchange rates?

A

Pound to different currency = multiply
Different currency to pound = divide

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28
Q

Who sets the exchange rate?

A

The forces of demand and supply establish exchange rates

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29
Q

What causes demand for pounds?

A

1) foreign investment in the UK - foreign businesses building factories in the UK will have to use its currency to demand pounds.
2) hot money flows into the UK - money that flows from country to country for the highest interest rates, has to be put into UK banks in pounds so must be exchanged
- banks deposit so gain surplus.
3) desire of foreign customers to buy UK exports - foreign businesses buying UK exports have to exchange their currency to pounds.

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30
Q

What are interest rates?

A

The cost of borrowing and the reward for saving.

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31
Q

Who sets interest rates?

A

The Bank of England

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32
Q

What are the impact of low interest rates on businesses, borrowers and savers?

A

Businesses: more likely to take out loans so invest, inc sales so inc demand, more likely to expand.
Borrowers: lower re-payments so more money to spend, greater demand across economy
Savers: less reward on saving so likely to spend money, less incentive to save

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33
Q

What’s the impact on high interest rates on businesses, borrowers and savers?

A

Businesses: loans more expensive, less sales and less demand, less likely to expand
Borrowers: greater repayments so less spending, less borrowing
Savers: higher incentive to save as greater rewards, spend less

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34
Q

What happens to exchange rates if interest rates are high?

A

The pound will be strong bevause the sterling is in high demand due to increased hot money.

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35
Q

What happens to exchange rates if interst rates are low?

A

There will be a weaker pound due to less demand for the sterling due to decreased hot money

36
Q

What does unemployment mean?

A

A situation in which people who are able and willing to find work and not able to find employment

37
Q

What are the unemployment rates for 2019, 2020, 2021?

A

2019 = 3.8%
2020 = 4.9%
2021 = 4.2%

38
Q

Why does the government want low unemployment?

A

1) unemplomemt is a waste of human resoruces - if they were working they would be producing goods and services
2) it s bad for society - social problems and benefits have to be paid for, which could be spent on areas like health and education
3) a low level of unemployment leads to more tax revenue for the gov and less welfare payments being paid
4) unemployment is bad for the individual- it can be damaging for self esteem and lead to peoblems like durg/ alcohol abuse and crime. This doesnr help them get back into work and may cost gov more money.

39
Q

What is balance of trade?

A

The difference between the value od exports and imports. If exports exceed imports, there is a balance of trade surplus. If imports exceed exports, there is a balance of trade deficit.

40
Q

How do you calculate balance of trade?

A

Exports - imports

41
Q

How to encourage exports and discoruage imports?

A

Promote passport to export programme
Weaken the £ so cheaper for foreign buyers
Lower inflation - cheaper abroad
Trade barriers (reduces imports)
Good quality/ unique products- more attractive abroad

42
Q

What are direct taxes?

A

These are taxes on on income and profits, paid directly by the bearer to the tax authoirty.

43
Q

What are indirect taxes?

A

These are taxes on expenditure/ spending. They are paid to the tax authorities, not by the consumer, but indirectly by the supplier of the goods or services.

44
Q

Wh are the UK tax authority?

A

HMRC

45
Q

What is income tax?

A

A direct tax taken out of someones income. In the UK its progressive (those earning more pay a higher proportion of their income)

46
Q

What is national insurance?

A

A direct tax taken as a contribution towards the state pension and treatment under the NHS (employment also contributes).

47
Q

What is VAT?

A

Value added tax. This is a tax added to most goods and servicies. It is indirect.

48
Q

How does a business benedit from being VAT registered?

A

They can reclaim it on equiptment

49
Q

What is corporation tax?

A

A tax on the profits nade by companies.

50
Q

What is the imoact of decreasnh corportion tax?

A

The busienss wik have more profits left over, it will increase the likelihood or them re-investing inktnthe economy .
Andecrease will attract forgein businesses to locate in the UK and decrease the chances of currenr business relocation.

51
Q

What is stamp duty?

A

A indirect tax on residential property purchases

52
Q

How can stamp duty be chnages to influence demand or property?

A

To infleunce high demand, it can be increased.
If demand is low then stamp duty increases to encoruage demand.

53
Q

What happens to house prices if stmap duty increases or decreases?

A

Increases = house prices decrease
Decreases = house prices increase

54
Q

What is the purpose of tax?

A

1) raise large amounts of revenue for gov to soene on public services
2) to control economic activity
3) to influence expenditure on certain items - discoruage or encoruage behaviour

55
Q

What are some of the governments expenditures?

A

Education
Health
Welfare
Housing
Social protection
Defence
Infrastructure
Business and industry
Overseas aid

56
Q

What is the monetary policy?

A

Manipulation of the level of demand in the economy using interst rates.
Controlled by monetary policy committee

57
Q

What is the fiscal policy?

A

Economic policy used to infleunce the level of spending in an economy conducted by the government through taxation and spending

58
Q

What does the fiscal policy do?

A

Effects the level of demand in economy

59
Q

What is the multiplier effect?

A

Effect of economic activity changes in one sector on other sectors

60
Q

What are the aim of supply side policies?

A

To improve economys overall productive capacity

61
Q

What are the supply side policies?

A

1) investment in education and training - more people to work
2) reducing welfare payememts - incentivise those without jobs to get jobs
3) income tax cuts - people getting more income so more people want jobs
4) cuts in corporation tax - businesses have more profits to reinvest
5) removing expensive and unnecessary business regulations- free time to produce
5) encouraging business start ups (through subsidies) - more businesses producing

62
Q

What is the business cycle?

A

The observed pattern of increases and decreases in economic growth (measured by % change in GDP) over time.

63
Q

What are the four stages of the business life cycle?

A

Slump
Recovery
Boom
Recession

64
Q

What can the MPC do to help an economy recover?

A

The MPC can lower interst rates to increase/ encourage spending

65
Q

How will businesses respond to a recession/ slump?

A

Redundancies
Intense peomotional acitivty
Cut backs on production
Hold less stock

66
Q

How can a business use the business cycle to its advantage?

A

Premises will be cheaper during recession so if they can they may expand
Staff wil be cheaper to emplu due to greater unemployment
Products on sale may be cheaper and can sell inferior products to gain sales
Assets purchases - prices will fall so may buy assets if thy can or liquidise for cash
Share prices will be cheaper so may buy more and sell when economy improves

67
Q

What is international trade?

A

Selling across borders ie the exchange of goods/ services with other countries

68
Q

Why do countries trade internationally?

A
  • for variety
  • for economic efficiency
  • to grow
  • to avoid conflict
  • to specialise
69
Q

Why would a country trade for variety?

A

Business can obtain products they cant make themselves or could but at a vast cost

70
Q

Why would a country trade for economic efficiency?

A
  • gain economies of scale (raw materials at lower unit cost)
  • foreign firms competing in domestic market help UK firms be more efficient
71
Q

Why would a country trade internationally for growth?

A

Access to millions new customers creating potential for business

72
Q

Why would a business trade internationally to avoid conflict?

A

Nations become dependent on one another

73
Q

Why would a country trade internationally to specialise?

A

Country can specialise in what it does best (what its resources are most suitable for)

74
Q

How can adding tariffs reduce imports into a country?

A

Makes the products more expensive for the buyers so prices increase for consumers

75
Q

What is a multinational?

A

A business that operates in more than two country’s eg has a factory

76
Q

What are the factors a business should consider when trading internationally?

A

1) language
2) cultural differences
3) logistics
4) currency
5) buying habits

77
Q

What financial and no-financial sources of support are available for business who trade internationally?

A

Export insurance
The Passport to Export Programme

78
Q

What is export insurance?

A

Protection in the form of reimbursements for exporters of products and services in the case of non-payment by a foreign buyer

79
Q

What is the Passport to Export programme?

A

Provides assistance with:
- market research + selecting target markets(s)
- visiting potential markets
- assessment of readiness to export
- action plan for exporting

80
Q

What is globalisation?

A

The process of increased integration and interdependent of national economies

‘Death of distance’

81
Q

What happens to international trade when globalisation increases?

A

International trade so increases

82
Q

Why has increased globalisation led to increased international trade?

A

1) globalisation —> inc competition —> need to over prices. Businesses attracted to low prices and so will import cheaper materials from other countries.

2) globalisation inc= infrastructure dev quicker —> easer o transport goods between countries

3) globalisation = connectedness of markets —> inc IT bc customer + business can order = pay for goods anywhere in world

83
Q

What is free trade?

A

Trading without tariffs and quotas being imposed on products

84
Q

What is the opposite of free trade?

A

Protectionism

85
Q

What are the advantages of free trade?

A

1) economies of scale for businesses if export demand inc bc one country will expect the same if they remove tariffs for a country
2) business has access to greater raw materials at lower cost
3) customers have lower prices from inc competition

86
Q

What are the disadvantages of free trade?

A

1) foreign competition can lead to job loss domestically
2) less economically developed countries can produce more at lower cost so demand for exports increase meaning that non renewable resource are used up
3) business have more competition from businesses in other countries

external influences (15 decks)

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