Investment scene

Question 1

Outline the role of economic statistics

Answer 1

Investment decisions need an assessment of the likely performance of an economy and the companies operating within that economy

Assess economic background of the country or countries which it operates

Most govs try to achieve environment of real economic growth with;

• high unemployment
• general growth
• low interest rates
• low inflation
• stable gov to provide certainty of investments

Achieved by;

• monetary control (interest rates and supply of money)
• fiscal policy (lev of gov spending and taxation)

Question 2

How to measure economic activity

Answer 2

1) GROSS DOMESTIC PRODUCT (GDP)

Measure of total value of g/s produces by economy = wealth

GDP = C + I + G + (X - M)

C= private consumption/ personal spending

I= investment in capital by business or household (machinery, houses, financial products = savings)

G = total gov spending on g/s (public services or military hardwear)

X = gross exports

M = gross imports (deducted to avoid counting foreign goods as domestic)

Question 3

Limits of GDP

Answer 3

Question usefulness of data as doesn’t include black economy or face value of online business

Measured x4 year (UK)

Question 4

How measure economic activity

Answer 4

2) GROSS NATIONAL PRODUCT

value of output of all members of economy

Net income overseas investment - income earned by foreigners resident in economy

Question 5

How to measure economic activity

Answer 5

3) Balance of payments

Value of exports - value of imports

• movement is divided into current account (short term transactions) and capital account (long term)

Balance of trade; 
Visible trade (physical goods)

Invisible trade (services and income movements i.e tourism)

Question 6

How to measure economic activity

Answer 6

4) Level of employment

Gov control employment through interest rates and money supply (total amount cash in circulation, bank deposits and savings)

William Beverage “full employment exists in economy when unemployment rate is 3%” - 20th century

High unemployment causes;

• loss of output
• loss of tax income
• loss of profits to companies
• increase gov expenditure to support unemployed lifestyle / benefits

High employment (vise Versa)