Introduction To The National Economy

- Interest Rates, Saving, Borrowing, Spending and Investment - Government Income and Expenditure

Interest rates:

Interest rates:

The percentage of an amount of money being charged for use, for example, if you borrow $100 and you have an interest rate of 6% you will owe $106 at the end of the year.

Saving

Setting aside money for the future instead of using it as soon as received, this can be done by putting the money in a savings account.

Borrowing

Getting money from another group with an agreement to repay it.

Spending

Using your money to obtain goods or services

Investing

Putting money into stocks property or businesses to expect a profit.

Factors

Factors that influence the different interest rates can include inflation of the economy, economic growth or decline, bank policies, and foreign exchange rates.

Consumers

Interest rates affect consumer's decisions because higher interest rates provide greater Returns on savings, and make borrowing more expensive, while lower interest rates reduce the cost of borrowing making it more easy for people to spend their money.

Producers

Interest rates affect producers' decisions because higher interest rates increase the return on savings which results in businesses saving their profits, increasing the cost of borrowing which discourages companies from taking on loans, and lower interest rates lessen the cost of Investments making it more appealing to invest in new technology or equipment.

Revenue

The UK government mainly receives its money from taxes from the public which is spent on public facilities.

Spending

The UK government mainly spends on goods and services.

Public Goods

These are goods that are available to everyone.

Budget Defect

When the government spends more than it receives

Budget Surplus

When the government earns more money than it spends.

Direct Taxation

Direct taxation is when taxes are paid directly by individuals to the government based on income

Indirect Taxation

Taxes that are paid on goods and services bought rather than income.

Progressive Taxes

Taxes where the tax rate increases as the taxable amount increases.

Regressive Taxes

Taxes when the tax rate decreases as the taxable amount increases which makes it harder for lower-income individuals.

Supply

How much of a good or service a producer wants to own at a time.

Demand

The number of a good or service that a consumer is able to buy.

Main Idea

As prices increase, supply increases, this is because producers are more lenient to make more of the product to capitalize on higher prices.

Equilibrium

When quantity supply equals quantity demand, no surplus or shortage of goods.

Stock

An ownership of a company, being the shareholder means you are a partial owner of a company and may have benefited from profits.

Stock Market

Where stocks are traded and exchanged, this can be the NASDAQ or NYSE.

Exchange

Where buyers and sellers meet to trade.

Ticker Symbol

Unique letters that represent a stock.

Bull Market

When stock prices rise, people are optimistic about the stock market.

Bear Market

When stock prices decrease, people are pessimistic during this time.

Supply and Demand

This influences stock prices because when more investors want to buy compared to sell, the prices are usually higher.

Company Performance

When a company is doing well based on earning reports, company news, and financial health, the prices usually go up.

Inflation:

An increase in the price level of goods and services in an economy over time.

Deflation

A decrease in the price of goods and services, often caused by less supply of money or credit.

Consumer Price Index (CPI)

A measure of the weighted average of prices of a basket of consumer goods and services.

Hyperinflation

Out-of-control inflation.

Stagflation

When the inflation rate is high, the economic growth rate slows, and unemployment is steadily high.

Cost-Push Inflation

When prices rise because of the increase in the cost of production.

Demand-pull inflation

Prices rise because the demand in an economy outpaces supply.

Core Inflation

Change in the costs of goods and services does not include those from the food and energy sectors

Monetary Policy

When the monetary authority of a country controls the supply of money, targeting an inflation rate or interest rate for stability and growth

Phillips Curve

The inverse relationship between the unemployment rate and the rate of inflation.

Globalization

When organizations start operating on an international scale

Free Trade

International trade is without tariffs, quotas, or other restrictions.

Tariff

A tax to be paid on imports or exports.

Quota

A limited quantity of a product that is under official control can be produced, exported, or imported.

Trade Balance

Difference between a country’s exports and imports of goods.

Protectionism

The theory of protecting a country’s domestic industries from international competition by taxing imports.

Exchange Rate

Value of one currency for conversion to another

Trade Deficit

Measure of international trade where a country’s imports exceed its exports.

Trade Surplus

Measure of a positive balance of trade, where a country’s exports exceed its imports.

World Trade Organization (WTO)

A supranational organization that regulates international trade.