External Influences(Sec 6) Flashcards
(27 cards)
What are the economic objectives of governments?
- Low inflation
- Low unemployment
- Economic growth
- Balance of payment b/w imports & exports
What is inflation?
Inflation is the rise in the average price of goods and services over time
What is meant by economic growth?
It is when a country’s GDP increases-more goods and services were produced than the previous year
What is real income?
Real income is the value of income. It falls when prices rise faster than money income
What problems does inflation cause?
- Real income will fall, wages buy less goods than before
- Prices of goods produced will be higher than that of other countries, so exports fall
- Businesses will be reluctant ti expand into the country
What problems does unemployment cause?
- Unemployed people don’t contribute to the growth of the country, output decreases
- The Gov has to pay benefit to unemployed people, and if there are many, it is very expensive
What problems arise from low economic growth?
- Less output, so more unemployment
- Standard of level declines, people get poorer
- Businesses will be reluctant to expand into the country
What is Gross Domestic Product (GDP)?
GDP is the total value of output of goods and services in a country in one year
What are the four stages of the business cycle?
- Growth: GDP rising, everyone happy
- Boom: Caused by too much spending, prices rise
- Recession: Caused by too little spending. GDP falls
- Slump: Long recession, high unemployment
What is meant by recession?
A period of falling GDP is called a recession
What problems arise from imports being more than exports (a balance of payments deficit) ?
- May run out of foreign currency and have to borrow it
- Exchange rate depreciation occurs
What is meant by “exchange rate”?
The exchange rate is the value of one currency iin terms of another
What is exchange rate depreciation/appreciation?
- Depreciation: It is the fall in the value of a currency in relation to other currencies
- Appreciation: It is the rise in the value of a currency in relation to other curriencies
What are three government economic policies?
- Fiscal policy: Change in government spending/tax rates
- Monetary policy: Change in interest rates by the gov
- Supply side policies: Improving efficiency of supply
What are the two types of taxes?
- Direct taxes: Come from incomes (e.g. Income tax)
- Indirect taxes: Added to prices of goods (e.g. VAT)
Name four types of taxes
- Income tax: A percentage of people’s incomes
- Corporation tax: A percentage of businesses’ profits
- VAT: A tax added to the price of products
- Import tariffs: Taxes on importing goods
What are effects of higher interest rates?
- Firms/consumers will be less likely to borrow
- Higher exchange rate (maybe)
- Consumers’ disposable income reduces
- Firms have to pay back more interest, so profit lessens
Name three supply side policies.
- Privatisation: Improves efficiency
- Improving training/education: Increase in skilled workers
- Increase competition: More efficiency, less monopolies
What are externalities?
Externalities are:
- External costs: costs paid for by society coz of a business
- External benefits: gains of society coz of a business
What is sustainable development (with examples)?
Development which does not put at risk the living standards of future generations, like
- Renewable energy
- Recycling
- Using less resources
- Using environment friendly products/production methods
How can society force a business to be more environmentally-friendly?
- Pressure groups
- Government laws
- Fines, permits
Benefits/limitations of ethical decisions?
+Good publicity, happy consumers, investors & workers
+Increase in long-term profits, less risk of legal action
-Higher costs–>Higher prices–>Less sales
-Less short term profits
What is globalisation?
Globalisation is used to describe the rise in worldwide trade and movement of people b/w countries
What are free trade agreements?
Free trade agreements are when countries agree to imports/exports with no trade barriers like tariffs/quotas
