economic objectives & the role of the government

Question 1

Economic growth

Answer 1

Increase in GDP over time

Question 2

Gross domestic product

Answer 2

The value of output produced within a country in a year

Question 3

Formula to calculate economic growth

Answer 3

Change in GDP/ Original GDP * 100

Question 4

GDP per capita

Answer 4

GDP divided by population
it can be used to measure standard of living in a country as it shows how much income people have to buy G+S
However incomes may not be spread evenly within an economy

Question 5

Boom

Answer 5

Economic growth is positive and high over a period of time

Question 6

Recession

Answer 6

GDP falls for two or more consecutive quarters (i.e. 6 months)

Question 7

What is an impact of a recession

Answer 7

Fewer workers are needed to produce a lower level of output. This leads to a increase in unemployment and a decrease in incomes. This may also lead to a fall in spending which leads to fewer goods and services being demanded. In this turn this leads to a fall in output and cycle continues

Question 8

What are the determinants of economic growth

Answer 8

Changes in technology – advances can improve the quality of capital gods
Size of workforce
Natural resources
education and training
investment
government policies

Question 9

What are the benefits of economic growth

Answer 9

EG means that an economy can make more output -> greater amount of G+S available to buy which might decrease prices and increase living standards of consumers
More workers are needed to meet the extra output which creates more jobs and less unemployment

Question 10

What are the costs of economic growth

Answer 10

More production may create more pollution, harming health.
Increased production may harm the environment e.g. water pollution kills fish, which has a negative impact on fishermen
INFLATION demand rises faster than supply more competition G+S between consumers and price level rise

Question 11

Employment

Answer 11

people who are willing and able to work can find a job

Question 12

Unemployment

Answer 12

people who are willing and able to cannot fin a job

Question 13

Claimant Count

Answer 13

a measurement of unemployment using the number of people who claim unemployment- related benefits

Question 14

Level of unemployment

Answer 14

the total number of people who are in the workforce and are without a job

Question 15

How do you calculate unemployment rate

Answer 15

number of unemployed / workforce * 100

Question 16

What are the 4 types of unemployment

Answer 16

1) CYCLICAL - workers without employment due to a fall in total demand for G+S
2) FRICTIONAL - workers without employment as they move from one job to another
3) SEASONAL - workers without employment due to a decrease in demand in certain times of the year
4) STRUCTURAL - workers without employment due to the decline of industry e.g. steel production in the UK

Question 17

What are the benefits of unemployment

Answer 17

International competitiveness
workers may have to accept a lower wage rate to get a job which reduces the costs for firms meaning they can have lower prices and be more price competitive against overseas firms

Question 18

What are the costs of unemployment

Answer 18

Lower standard of living
individuals have less income so can afford fewer G+S that contribute to their wellbeing
Lower income
unemployment related benefits is relatively low and wages are pushed down due to a surplus of workers

Question 19

Distribution of income

Answer 19

Describes how income is divided between individuals and households in a country

Question 20

Income

Answer 20

A flow of money over time, often as a reward for use of a factor of production

Question 21

What are the types of income

Answer 21

Profit - reward for enterprise
Wages - reward for work
Rent - reward for use of land over a period of time
Interest - reward for saving or lending
State benefits - the government transfers income by taxing some people and paying benefits to others

Question 22

Wealth

Answer 22

The monetary value of all assets owned by an individual person, firm or a country at a specific time. E.g. houses, cars, jewlerry

Question 23

Gross income or pay

Answer 23

the full amount paid to an employee before any deductions are made

Question 24

Price stability

Answer 24

when the general price level either stays the same or rises at a low rate over time

Question 25

Inflation

Answer 25

a sustained increase in the general price level fall in purchasing power where consumers can buy less with the same amount of money = increase cost of living

Question 26

Real and nominal values

Answer 26

the value of an economic variable that takes account of changes in the general price level over time economic variable based on current prices

Question 27

Consumer price index ( CPI )

Answer 27

A measure of the general price level used to calculate the inflation rate

Question 28

How do you calculate change in price due to inflation

Answer 28

original price / 100 * inflation rate

Question 29

How do you calculate new price after inflation

Answer 29

original price * ( 1 + inflation rate / 100 )

Question 30

Causes of inflation ( demand-pull)

Answer 30

demand pull inflation - too much demand total demand rises faster than total supply in a country one cause is increased incomes, consumers are able to afford more G+S, leads to higher prices. More likely when firms are producing close to its productive capacity -> firms are less able to respond easily and quickly to an increase in demand

Question 31

Causes of inflation ( Cost-push)

Answer 31

Cost push = rise in costs caused by a rise in cost of production which firms try to pass o to consumers to maintain profits -> rise in the general price level A fall in productivity leads to rise in avg cost as higher proportion of a workers hourly wage is needed to make a single unit of output so this increased wage bill increases cost which leads to higher prices

Question 32

Consequence of inflation for consumers

Answer 32

Loss of consumer confidence- difficult for consumers to value different goods and how to decide how to prortisise spending their income so the uncertainty may stop them buying G+S Shoe leather costs - consumers & firms have to compare pricesmof different goods from suppliers. Cost time & effort to find the best deals Fall in real income - if income risises slower than inflation consumers wiill have less purchasing power

Question 33

Consequence of inflation for producers

Answer 33

Increased production cost Menu costs - firms may have to update pricing information on their goods due to inflation which can increase their production cost e.g. printing & distributing new catalogs lower exports loss of buisness confidence - if firms are uncertain about the prices of their input cost & selling price for their goods, this may make them reluctant to invest, which can lead to lower productivity

Question 34

Consequence of inflation for savers

Answer 34

Inflation reduces the impact of any interest and may reduce the real value of the money saved, e.g. if someone is saving for a specific target such as a car but the price of the car rises at a faster rate than the person can save

Question 35

Consequence of inflation for government

Answer 35

leads to pressure to increase wages for its employees such as NHS & state school costs. This can lead to costly industrial disputes and if wage rises are agreed, increased government spending

Question 36

Types & purpose of government spending

Answer 36

Education - to ensure that everyone is equipped with basic skills e.g. reading Healthcare - to increase the welfare of all e.g. preventing disease

Question 37

Government revenue

Answer 37

amount of money the government receives

Question 38

Government spending

Answer 38

the total amount of money spent by the government in a given time period

Question 39

Direct tax

Answer 39

tax on income and wealth income tax corporation tax inheritance tax capital gains tax

Question 40

Indirect tax

Answer 40

a tax on spending which is imposed on the producer but then may be passed down to consumers through an increase price VAT custom duties

Question 41

Balanced budget

Answer 41

revenue is equal to government spending

Question 42

Budget surplus

Answer 42

revenue is greater than government spending

Question 43

Budget deficit

Answer 43

revenue is less than government spending

Question 44

Fiscal policy

Answer 44

a policy that aims to control the economy through the use of government revenue and spending

Question 45

What are 5 government objectives

Answer 45

1 rise in economic growth 2 lower unemployment 3 price stability / lower inflation 4 improved balance of payments 5 fair distribution of income

Question 46

Government spending is likely to.....

Answer 46

increase economic growth increase employment increase inflation

Question 47

What are the effects of government spending on different markets

Answer 47

Private sector - by building new schools their is more demand for computers, tablets etc. so the profits of firms rise

Question 48

Cost of fiscal policy

Answer 48

Consumers may save rather than spend their extra income so economy does not grow as much expected Firms and consumers might spend their extra money on imports making the balance of payments worse

Question 49

Opportunity cost of fiscal policy

Answer 49

If the government spends more on one are e.g. education it will spend less on another e.g. healthcare If the government spends more it could pay for it by higher taxes. This means that consumers have less income so they spend less meaning that VAT receipts fall

Question 50

Benefits of fiscal policy

Answer 50

Reduced unemployment- Government can cut taxes/increase spending> there is more demand for labour. Consumers can spend more so more labour is demanded Also cutting taxes and increasing spending leads to greater output as consumers purchase more and firms increase investment leading to economic growth

Question 51

Monetary policy

Answer 51

aims to control total supply in the economy to try to achieve the governments economic objectives, in particular price stability

Question 52

How can monetary policy affect growth

Answer 52

spending and borrowing by consumers increase. Borrowing is cheaper so disposable incomes rise. Rising consumption

Question 53

How can monetary employment affect employment

Answer 53

Spending and borrowing by consumers incraese leads to more demand for UK goods and services so more people are employed to provide these

Question 54

How can monetary policy affect price stability

Answer 54

spenidng and borrowing by consumers increase Borrowing is dearer so people who have a mortgage pay more. Spending encurs a higher opportunity cost so consumption falls leading to a fall in demand for G+S

Question 55

Effects on monetary policy on consumer spending

Answer 55

oportunity cost of spending this falls so consumer spend more and save les. If the fall is large then spending will increase and savings will fall but if small there may be little or no effect

Question 56

Supply-side policy

Answer 56

any policy that helps to increase a country productive potential

Question 57

cost of supply-side policies

Answer 57

time lags policies take a long time to become effective so the conditions in the economy may have changed monetary cost because policies take a long time, costs can grow beyond estimates, policies such as education/training are labour intensive so costly

Question 58

benefits of supply side policies

Answer 58

reduced inflation product and labour markets become more efficient so output rises to combat increase demand thus keeping inflation under control

Question 59

Externality

Answer 59

the impacts of an economic transaction on a third party

Question 60

Positive externality

Answer 60

the benefit of an economic transaction for a third party

Question 61

Negative externality

Answer 61

the cost of an economic transaction for a third party

Question 62

Taxation

Answer 62

government collection of money from individuals and firms

Question 63

Indirect tax

Answer 63

a tax raised on spending on G+S

Question 64

Subsidies

Answer 64

a sum of money given by government to firms to encourage production and consumption