U6 Ch.25 Economy Flashcards
Free Enterprise Economy
Little to no government involvement. Businesses provide goods and services to satsify consumers’ needs and wants
e.g. USA
Benefit: larger choice at competitive prices
Disadvantage: large wealth distribution gap can develop
Economy Definition
how business, consumers, and governments trade and interact with each other in the production and distribution of goods and services in a country
Centrally Planned Economy
Government makes all decisions relating to production of goods and services.
e.g. North Korea
benefits: more equal wealth distribution
Disadvantage: no profit motive makes firms inefficient
Mixed Economy
Combines elements of free enterprise and centrally planned. Decisions about production and distribution of goods and services made by businesses, consumers and government
e.g. Most countries (Ireland, UK, Japan)
Benefit: More equal wealth distribution + more choice
Disadvantage: regulation on private industry
Economic Growth Definition
Increase in demand for goods and services in an economy. Measured by GDP and GNP
GDP
Gross Domestic Profit.
Value of goods and services produced in a country. Including foreign owned business located in that country.
GNP
Gross National Profit.
Value of goods and services produced by citizens and businesses of a country including if they operate abroad. Does not include foreign-owned businesses located there.
Economic boom
level of activity in an economy rapidly rises. More than 4% GDP increase.
-increases demand for g + s
-property prices rise
-unemployment declines
Economic recession
level of activity in an economy slows down. GDP is negative and falls for two consecutive quarters.
-less demand for g + s
-consumer confidence falls
-unemployment increases
Economic Depression
Prolonged recession.
Benefits of Economic Growth
- More jobs
- less government expenditure (social welfare)
- Higher gov revenue (more buying and earning)
- Higher business sales
- Encourages Entrepreneurship (confidence in market)
Economic Variables
- Inflation
- Interest Rates
- Exchange Rates (seems to not be included in any exam Q’s)
- Unemployment
- Taxation
Inflation
Sustained percentage increase in the price of goods and services in an economy from one period to the next. Measured by CPI
CPI
Consumer Price Index. Measures overall change in price of goods over time. The CSO records price of a specific number of g + s that an average customer buys. Compares their current price to previous period.
Rate of inflation formula
(Increase X 100) / Previous Price
Deflation
when rate of price increase is less than zero
High Inflation Impacts
- Gov (increase tax credits to maintain level of disposable income. This reduces income tax revenue)
- Business (falling sales as consumers buy cheaper goods supplied from outside Ireland)
- Consumer (demand higher pay + IR issues)
Low inflation Impacts
- Gov (less VAT)
- Business (price of raw materials willnot increase dramatically)
Interest Rate
The cost of borrowing capital in percentage terms. The interest charged on loans from financial institutions.
High Interest Impacts
- Gov (reduces spending and therefore VAT revenue)
- Business (postpone expansion as cost of borrowing has increased)
- Consumers (decide to save instead of spending as the earn higher interest)
Low Interest Impacts
- Gov (more revenue as businesses expand)
- Business (more borrowing. consumers also borrow more leading to more spending and sales)
- Consumers (cheaper mortgage repayments)
Exchange Rate
Price of one currency expressed in terms of another. Constantly fluctuate
Low Euro value impacts
- Gov (increase in cost of essential imports)
- Business (increased export sales. As result may need more staff)
- Consumer (switch to domestic products as imports are more expensive
High Euro value impacts
- Gov (sales may decline in export businesses leading to less corporation tax revenue)
- Business (less sales in foreign markets as more expensive)
- Consumers (greater spending power in non-euro countries)
