GCSE Economics - paper 2

What is GDP?

The general worth of the countries imports and exports

What are the government objectives?

T: trade balance

I: inflation

G: growth

E: employment

R: redistribution of wealth

What is unemployment?

The people who are able to work who are without a job

What are the types of unemployment?

Structural: the reduction in demand for certain industries causes these goods of services to no longer be required causing firing

Seasonal: People who are out of work because of the seasons.

Cyclical: jobs are lost in a country due to a recession

Frictional: People who are between jobs

Classical: When wages are too high so people are fired

What is fiscal policy?

A policy in which the government addresses taxation and spending

What is purchasing power?

The amount of goods and services which can be purchased by a persons income.

What is deflation?

Decreased general price levels

What are nominal values?

The current normal value

What are real values?

The values but adjusted for inflation

What are visible exports?

Services bought by uk residents or firms

What are visible imports

Goods bought by uk residents or firms

What are invisible exports

Services which are sold to foreigners

What are invisible imports

Actual goods that are sold to foreigners

What is the balance of payments?

Records all financial dealings with foreigners. The current account is the part of the balance of payments where the value of exports and imports is recorded.

What is a trade deficit?

Importing more than exporting

What is a trade surplus?

exporting more than importing

What is a current account surplus

Value of exports is higher than value of imports

What is a current account deficit

Value if imports are higher than value of exports

How does the UK reduce imports?

1. Boost productivity

2. Slowdown customer spending

3. Use quotas

4. Tax on imports

5. Devaluation of currency

What is demand side policy

An economic policy focused on increasing or decreasing aggregate demand to influence unemployments and general price in the economy

How does budget deficit work in fiscal policy?

Used when the government wants to expand or reinflate the economy. Achieved economic growth and reduces unemployment with the cost of inflation

How does budget surplus work in fiscal policy?

Used when the government wants to contract or deflate the economy. Reduces inflation and the balance of payments deficit but may lead to less growth and more unemployment

What are the types of government expenditures?

1. Government consumption expenditure

2. Government investment expenditure

3. Transfer payments

4. Redistribution of income

5. To prove essential services

6. To overcome market failure

What is supply side policy?

Intended to increase economic production potential by improving the efficiency in which markets operate

What are supply side policy techniques?

• infrastructure development

• Investing in education

• Reducing direct costs

• Reducing benefits

• Privatisation

• Promoting competition

• Reducing the power of trade unions

Free market supply side policy?

• Tax cuts

• Deregulations

• Labour market reforms

• Achieving greater labour market flexibility

• Privatisation

What is monetary policy?

A policy that aims to control the money supply in the economy to try and achieve the economic objectives particularly price stability

What is the primary tool of monetary policy?

Lower interest rates as most people have something which is dependant on that.

What is the base rate?

The interest rate that a central bank will charge commercial banks for loans

What is the MPC?

Uk monetary policy is set by the MPC

Advantages of monetary policy?

• independent from the government thus not affected by politics

• Full effects of interest rates cannot be seen for a year but effects on confidence change instantly

Disadvantages of monetary policy?

• takes time to see full effects

• Money supply is difficult to control

• Interest rates may fall to low levels causing a recession

What are the types of monetary policy?

Expansion: increases money supply

Contraction: decreases money supply

Benefits of imports and exports for consumers

• lower prices

• Greater choice of goods

• More innovative and better quality goods

Benefits of imports and exports as a producer?

• access to larger markets to sell to

• Increased competition

• Larger market for biting imports and exports which lowers average costs

What is a free trade agreement?

Allows free movement of goods and services between countries. Removed restrictions on imports and exports.

What happens when there is a stronger pound?

Stronger pound imports cheaper exports dearer

What happens when the pound is weak?

Weaker pound imports dearer exports cheaper

What is globalisation?

The process by which the world is becoming increasingly interconnected as a result of massively increased trade and global exchange

What is GDP per capita?

Output per level of population

What are the impacts on GDP per capita?

Life expectancy, technology, education, access to health care

What is KOF?

A ranking of countries based on how globalised they are

The business cycle explain?

The economic boom:

• occurs when National output is rising fast

• Output & employment expanding greatly and demand is high

Economic slowdown:

• occurs when the rate of growth decelerates but is still rising

Economic recession:

• a fall in level of real national output

• Output declines due to a contraction in employment and income

Economic recovery:

• a recovery occurs when National output starts to pick up from the through reached at the low point of the recession

• Pace is determined by how quickly aggregate demand starts to rise

What is a tax threshold?

The level at which a person begins paying income tax

What is direct tax?

A direct tax passes from the payer straight to the government

What is an indirect tax?

Tax passes from the pay to supplier to government