The government and the UK's economy Flashcards
What is a recession?
a general slowdown in economic activity
What is economic growth?
the total value of all final goods and services produced in a given country in a given year
What is disposable income?
the amount of income left to an individual after taxes have been paid
2 things you might use disposable income for
spending
saving
What is an economic slump?
A period when the economy or an industry is in a bad state and there is lots of unemployment
What is economic recovery?
A period of increasing business activity signalling the end of a recession
What is demand?
The desire to own anything, the ability to pay for it and the willingness to pay for it
What is a boom?
A period of high financial growth in economy
What is the economic business cycle?
The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time
What is the UK economy?
the amount of production, employment, demand and supply that takes place in the UK
What is the trade cycle?
economies commonly go through periods of economic growth and recession, which can be illustrated in a graph
Why is the government concerned with a country’s economy?
When the economy is doing well, there is lots of employment so they receive a lot of money in tax and have to pay out less in benefits
This means they can help support public sector industries like the NHS
Why does the demand curve on a supply and demand graph slope down?
The lower the price, the more people that will buy the product
Why does a supply curve slope up on a supply and demand graph?
As the price decreases, the demand increases so the supply must increase too so you have enough to sell
Where is equilibrium on a supply and demand graph?
Where supply = demand
What does equilibrium on a supply and demand graph tell us?
It determines what price a product is sold for
What are interest rates?
Interest is what you pay a bank for borrowing money or what a bank pays you for saving money
It is paid to you or you pay it back over the course of a year
How are interest rates expressed?
As a percentage of the amount of money you borrow or save
What is GDP?
The total market value of all the final goods and services produced by a country in a year
Why is GDP important when looking at where a business is on the business cycle?
It indicates levels of production and how active businesses are
What is inflation?
A general increase in prices
What is the government’s limit on inflation?
2%
What is hyperinflation?
When prices go out of control
Why can inflation have an impact on the business cycle?
If prices increase and people’s wages don’t increase, they can’t buy as much
Demand falls
There is now an increased risk of unemployment which may lead to a recession
In the case study, what is the interest rate predicted to be in 2018
3%
What impact would inflation have on GG Toys and Tom’s Toys?
People’s spending power has decreased if wages don’t increase too
People would choose to cut back on the non-essentials, such as toys
What is the UK interest rate set by the bank of England?
0.5%
What happens when the Bank of England changes its interest rate?
Other businesses use it as a guideline and follow
Why would UK businesses be concerned with the UK interest rate?
Loans would become more expensive
This may prevent them borrowing to expand
Customers don’t have as much money because it is more expensive to use credit cards and their mortgages may have increased
Why would GG Toys be concerned with the UK interest rate?
They want a loan and it may become more expensive for them to do it if interest rates rise
What is the link between inflation and interest rates?
As the economy moves into a boom, people will have more money to spend
Demand increases
Demand curve moves right
Prices increase (inflation)
Interest rate increases so people’s income falls
Demand will fall and then inflation will fall
Characteristics of a boom 6
confidence, spending, income, unemployment, inflation, investment
Confidence: optimistic Spending: high (high borrowing, low saving) Income: high Unemployment: low Inflation: high Investment: high (firms expanding)
Characteristics of a recession 6
confidence, spending, income, unemployment, inflation, investment
Confidence: falling Spending: falling (less borrowing, more saving) Income: falling Unemployment: rising Inflation: falling Investment: only essential investment
Characteristics of a slump 6
confidence, spending, income, unemployment, inflation, investment
Confidence: pessimistic Spending: low, must pay off debts instead Income: low Unemployment: high Inflation: low Investment: none
Characteristics of a recovery 6
confidence, spending, income, unemployment, inflation, investment
Confidence: rising Spending: increasing Income: rising Unemployment: falling Inflation: stable, slight rise Investment: only essential
Business cycle for Bowton
2008: economic conditions difficult -> recession begins
2011: 14,000 out of 80,000 were unemployed, incomes fell 8% on average -> slump
2014: some growth in business activity -> recovery
2018: over 7,00 jobs created -> recovery
2022: predicted boom
What is globalisation?
Businesses in different countries become interconnected through trade and labour movement
Benefits of globalisation 3
Larger target markets for businesses
More employment opportunities with cheaper foreign labour and production costs
More competition leads to lower prices of a wider range of products
Disadvantages of globalisation 3
Greater competition = lower prices = less profit
May lead to lower sales
May lead to unemployment in UK if moves abroad
Globalisation and specialisation
Leads to countries specialising in what they are good at to trade with other countries e.g. UK specialises in financial and service sector
How is globalisation connected to GG Toys?
They wish to produce in China and sell to EU
30% exported to EU countries
70% exported to UK
How is globalisation connected to Tom’s Toys?
40% of stock from EU countries
30% from non EU
30% from UK
Exports to countries such as NZ and USA
What is the EU?
28 member states with an agreement of free movement of goods and labour between them
There are agreed tariffs with outside countries
Single currency, EU parliament and legislation
Impact of Brexit on Tom’s Toys?
May lead to tariffs - imports 40% of stock from EU
Could impact on plan to sell overseas
Impact of Brexit on GG Toys?
May lose customers from EU countries who but 30% of products
What are tariffs?
A tax imposed by governments on goods and services imported from other countries
What are exchange rates?
The value of your money against another
What are imports?
A good or service brought into one country from another
What are exports?
A good or service produced in one country and shipped to another
Acronym for exchange rates?
S - strong P - pound I - imports C - cheap E - exports D - dear
What does the term strong pound mean?
The value of the pound increasing against other currencies
Exports become more expensive
Imports become cheaper
What does the term weak pound mean?
The value of the pound decreases against other currencies
Exports are cheaper
Imports are more expensive
Why did China devalue its currency in the case study?
So people can buy more goods and it can build up its industry
What impact did the fall of the pound against the Euro have on Tom’s Toys?
Imports are more expensive, which has negative impacts for Tom’s Toys who import 40% of stock from the EU
What are supply side policies?
Those that improve the supply side of the economy
