Topic 2 - Personal Finance & Economy

Question 1

Personal finance

Answer 1

The money individuals receive and how they use it. Our contribution to the economy and to society comes in part through financial choices such as:

Working– inc. full-time, part-time, job-sharing, flexi-time and temporary
Paying tax
Saving
Giving to charity
Borrowing
Spending
Investing – e.g. a house that may increase in value and make you money (rent it out and gain an income from it, sell it for more than you paid for it)
Voting for a political party because you agree with its plans for spending or on taxation

Question 2

Citizens in the economy

Answer 2

Able to participate in the economic system in a variety of ways, particularly through:
having a job (employment)
paying tax

Makes it possible for the government to provide essential public services and for a society to become much more equal

Question 3

Government Influence

Answer 3

Influence financial decisions through policies including
Public spending
Interest rates
National debt
Shaping and responding to the economic climate

Question 4

Public Spending

Answer 4

How the government spends the money it makes e.g. through taxes, bonds (certificate that shows you have bought the debt from a company/government, in return the company/government pays a fixed amount of money in interest each year)

Areas:
Health
Education
Local government
Environment
Economic development

Ensures that all people are able to have a satisfactory standard of living and participate in the life of the nation

Question 5

National Budget

Answer 5

Set annually
Allows the government to decide where money is needed the most – education, health, benefits, pensions, transport etc.
In order to repay national debt, governments can reduce public spending and raise tax rates

Question 6

National Interest Rates

Answer 6

The money you pay as a charge for the service of using someone else’s money e.g. borrowing money for a car, you pay back the money you borrowed + interest / the bank pays you interest on money saved (it has access to your money)

Set by the Bank of England
Affects amount that people can save

Question 7

Economic Climate

Answer 7

Prevailing economic climate affects how people participate in the economy

Recession people spend and save less = income will be less as jobs and benefits are lost
Less income = less tax = less money available for public spending so cuts have to be made

Boom
More money in the system = higher employment levels + higher levels of spending. However, interest rates and inflation may rise, leading to a recession once again (people find themselves with high levels of debt that they are unable to repay)

Question 8

Personal Values

Answer 8

Impact on how an individual manages their finances
People make decisions based on what things they think are important

Can come from:
Family
Religion
Education
Peers
Media

Question 9

Austerity

Answer 9

Government measure to reduce the amount of money it spends (usually reduced wages and benefits)
Resulting in difficult financial conditions for a population

Question 10

Fiscal Policy

Answer 10

The decisions a government makes about taxes and what

to spend public money on

Question 11

Quantitative Easing

Answer 11

Government policy that allows the Bank of England to put more money into the economy by creating more electronically and then buying government bonds