Unit 3 - Economic Objectives And The Role Of The Government

Question 1

Economic growth

Answer 1

Growth in GDP (value of output) over time

Question 2

Determinants of economic growth

Answer 2

Investment (spending on capital goods), changes in technology, education, labour productivity, size of the workforce, natural resources and government policies (i.e. infrastructure development)

Question 3

Economic growth benefits

Answer 3

A rise in material lifestyles
A reduction in poverty (through tax revenue)
A rise in the welfare of the population
A rise in employment

Question 4

Economic growth costs

Answer 4

Pollution (Air, land etc)
Carbon emissions 
Congestion 
Loss of renewable resources 
Inflation 
A lower quality of life

Question 5

Employment

Answer 5

The use of labour in the economy to produce goods and services

Question 6

Claimant count

Answer 6

The method of measuring unemployment according to the number of people claiming unemployment related benefits

Question 7

Level of unemployment

Answer 7

The number of people in the working population who are unemployed

Question 8

Rate of unemployment

Answer 8

The % of the country’s workforce that is unemployed

Question 9

Four types of unemployment

Answer 9

Seasonal
Frictional
Structural (Permanent decline of an industry)
Cyclical (Fall in total demand in an economy)

Question 10

Benefits of unemployment

Answer 10

Wage inflation kept down
Firms can be more competitive on price
Inflation kept under control

Question 11

Individual consequences of unemployment

Answer 11

Loss of self-esteem
Lower living standards
Family issues
Become deskilled

Question 12

Government consequences of unemployment

Answer 12

Wasted labour resources
Paying out more in unemployment related benefits 
Less tax revenue 
Leads to further unemployment (cyclical)
Budget deficit

Question 13

Regional consequences of unemployment

Answer 13

‘Depressed areas’
Falling house values
Crime

Question 14

Distribution of income

Answer 14

How incomes are shared out between households

Question 15

Distribution of wealth

Answer 15

How wealth shared out between households

Question 16

Income

Answer 16

A flow of money over times includes wages, rent, interest, profits (dividends) and benefits (incl. pensions)

Question 17

Wealth

Answer 17

The combined value of a stock of assets at a particular point of time including property, land and money in the bank

Question 18

Causes of uneven income distribution

Answer 18

Income earning assets are unevenly distributed 
Differences in wages
Reliance on benefits (includes pensions)
Age
Gender

Question 19

Causes of uneven wealth distribution

Answer 19

Inheritance
Savings
Purchase of property
Enterprise

Question 20

Consequences of uneven income and wealth distribution

Answer 20

Poverty and deprivation (Distinguish between absolute and relative)
Poor housing
Poor health
Inequality of opportunity

Question 21

Cost of living

Answer 21

The price level of goods and services bought by the average family

Question 22

Price stability

Answer 22

When the general level of prices stays constant, or grows at an acceptably low rate

Question 23

Nominal values

Answer 23

The value of something in money

Question 24

Real values

Answer 24

Pay adjusted for inflation (Shows purchasing power comparable to other years)

Question 25

CPI Key Points

Answer 25

Measured using index | Basket is weighted

Question 26

Consequences of inflation for consumers

Answer 26

Shoe leather costs Loss of consumer confidence Fall in real incomes

Question 27

Consequences of inflation for producers

Answer 27

``` More flexibility setting wages Menu costs Conflicts (i.e. with trade unions) Less internationally competitive Make workers redundant Reduced business confidence (leading to less investment) ```

Question 28

Consequences of inflation for savers

Answer 28

Savings worth less (value falls)

Question 29

Consequences of inflation for the government

Answer 29

Policy needed to combat inflation More spending on benefits and public sector wages (index linked) More tax revenue (i.e. VAT)

Question 30

Government spending

Answer 30

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

Question 31

Government revenue

Answer 31

The source of finance for government spending

Question 32

Budget deficit/surplus - key point

Answer 32

The government might deliberately budget for a deficit/surplus to achieve objectives

Question 33

Macro economic objectives

Answer 33

Low unemployment Economic growth Price stability Balance in the balance of payments

Question 34

Fiscal policy tools

Answer 34

Taxes | Government spending

Question 35

Costs of budget deficit

Answer 35

No guarantee workers will spend extra money Extra income may be spent on imports Inflation could rise Opportunity costs

Question 36

Government action to redistribute income and wealth

Answer 36

``` Taxes Benefits Progressive taxes Inheritance tax Means tested benefits Education spending ```

Question 37

Progressive tax

Answer 37

A tax which takes a greater % of tax the higher the income

Question 38

Evaluating consequences of measures to redistribute income and wealth

Answer 38

People may not work in post tax income is not much better than benefits Workers may not seek promotion Businesses may not/invest in the UK High earners may move abroad

Question 39

Monetary policy

Answer 39

A policy that aims to control the total supply of money in the economy to try to achieve the government’s macro economic objectives - in particular, price stability

Question 40

Monetary policy tools

Answer 40

Interest rates | Quantitative easing

Question 41

Quantitative easing

Answer 41

The central bank makes more money available for High St banks to lend

Question 42

Other impacts of reduced interest rates

Answer 42

Fall in the value of the % | Asset (i.e. houses) prices rise

Question 43

Supply side policies

Answer 43

Policies that increase the productive capability of the economy i.e. increase the output

Question 44

Supply side policies examples

Answer 44

``` Education and training Subsidies Spending on infrastructure Reducing power of trade unions Competition policies Reduction in benefits Reduction in direct taxes Privatisation (encourages efficiency) ```

Question 45

Benefits of supply side policies

Answer 45

``` Targets specific markets Combats inflation Increases employment Improves the balance of payments Increases growth ```

Question 46

Evaluation of supply side policies

Answer 46

``` Times lags Costly Resistance i.e. trade unions Affects distribution of income negatively Unintended effects i.e. more P/T workers ```

Question 47

Externality

Answer 47

An effect of an economic activity on a third party

Question 48

Government policies to impact externalities

Answer 48

``` Taxes Subsidies Information provision State provision Legislation ```

Question 49

State provision

Answer 49

Goods and services provided directly by the government i.e. education and healthcare