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GCSE: Economy & Economics
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What are the government's economic objectives?
- 1 The government has four main objectives for the economy. These are called macroeconomic objectives. The relative importance of each varies from time to time and they are all interlinked.
- 2 Economic growth as measured by an increase in Gross Domestic Product (GDP) which the total value of everything produced in a country. This means that income will be increasing across the country.
- 3 Low unemployment means that fewer people are actively seeking employment. It is likely to come at the same time as rising growth. There will always be some unemployment as there will be people between jobs but the government usually likes to minimise it as it is expensive, unpopular and a waste of human resources for the economy.
- 4 Low inflation means that prices are only rising slowly. High prices means that goods of the country become less competitive compared to foreign countries and so will lead in the long run to lower growth and more unemployment. Inflation usually increases as growth increases so to achieve both is a difficult balancing act for a government.
- 5 Balance of payments equilibrium means that the value of goods and services imported equals the value of goods and services exported. This has become less important as an objective in recent years. Higher growth usually means more imports so the balance of payments also worsens as the economy grows.
What are the government's policies to achieve these objectives?
- 1 The government has several weapons it can use to adjust the economy to achieve the best balance of the economic objectives. Some of these are used at any time and some announced in the annual budget.
- 2 Interest rates can be increased or reduced to affect the amount of money in the economy. If interest rates are high, it becomes more expensive to borrow money so there will not be as much spent. This is mainly used to reduce inflation. Strictly speaking this is not a government action as the Bank of England decides on the best interest rate in the UK.
- 3 If interest rates are reduced, it will increase the amount of money in the economy as it becomes cheaper to borrow and there is less inclination to save money. There should therefore be more investment and spending which should lead to more growth.
- 4 The government can change the amount that it taxes and spends. By reducing tax, spending more and borrowing the difference it can increase spending in the economy so stimulating growth. It can increase tax or reduce spending to reduce inflation.
- 5 Recently, the Bank of England has tried quantitative easing to increase growth in the economy. This involves increasing the amount of money in circulation, again stimulating spending.
What are the long term policies for growth?
- 1 In the long run, the government would like to increase growth without having to use the above measures too much. This involves the use of supply side policies which aim to increase the amount that the economy can produce without setting off inflation.
- 2 Policies to increase productivity include privatisation (selling off government owned business so that it can be run competitively), deregulation (making it easier for businesses to compete in certain markets) and stronger competition laws. The aim is that increased competition will force businesses to become more efficient.
- 3 Encouraging investment and new businesses should increase growth. The government can give tax breaks for research and development, reduce corporation tax and give encouragement to new businesses.
- 4 Making the labour market more competitive should also improve the economy. Measures taken here include reducing the power of trade unions. Improved education and training should also make the workforce more productive.
- 5 Tax and spending is used as an incentive for people to work by for instance reducing rates of income tax and reducing welfare payments so people are more inclined to work.
- Marked by Teachers essays 5
- Peer Reviewed essays 24
A balance of payments deficit exists when the quantity of currency supplied is greater than that in demand. The demand for a nation's currency depends on the amount of its exports, domestic investments, and assets held in domestic currency. A nation's currency supply on world markets depends partly on the amount of imports, investments abroad, and assets held in foreign countries. Ultimately, the supply of a currency depends on national monetary policy; if a country prints too much money, causing inflation domestically, a balance of payments deficit results. Under a system of fixed exchange rates a country can adjust its balance of payments by trading its national currency for foreign currency or gold.
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Stating your assumptions carefully, outline the likely impact of an increase in taxation on the interest rate.5 star(s)
However the government can use taxation to target certain parts of the economy for taxation revenue. For example to reduce investment spending it could increase corporation tax. If the government were to increase income tax, the effect on the economy would be that the level of aggregate demand would fall, assuming that all other factors remained constant (ceteris parabus). This has the effect of reducing the economy's expenditure. This would have the effect of shifting the IS curve inwards, to the left, reducing the level of income and output in the economy. If the increase in tax was on income tax, then there would be less consumption because the marginal propensity to consume (MPC) would fall.
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Explain how economists model how an increase in government expenditure can lead to a greater increase in national income.5 star(s)
It is also useful to measure income against past income in the same country to see whether the economy is growing or declining. An increase in government expenditure is an injection in the circular flow on income.
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They then buy these goods and services which have been produced by the firms. These products have been produced using the income received and in this way the income is circulating throughout the economy. Leakages and Injections However, households do not spend all of the income that they receive, as illustrated by the above diagram, which is simply a simplified model of an economy. Households are also able to save part of their income. Saving is the foregoing of current consumption to allow for consumption in the future. People save by putting money in banks, building societies and other financial institutes.
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The firm of a market where this type of discrimination occurs is capable of differentiating between consumers, such as student or senior discounts. A student or senior consumer will have a different willingness to pay than an average consumer. Thus the firm sets a lower price for that consumer because that consumer has a more elastic price elasticity of demand. In third degree price discrimination the firm is capable of capturing more market surplus than would be possible without price discrimination.
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These contractions and expansions in supply are characterized by movements along the supply curve. The Price of other goods/service is another determinant of supply. The quantity of a good or service supplied at any time will be affected by prices of other goods and services. For example, if the price of a motorbike remained the same, while the price of scooter increased, it would become more profitable to produce scooters. Hence firms will be willing to supply fewer motorbikes and start producing and supplying more scooters.
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supply is scarce) then the balance of power in the market shifts towards the seller. This is because there is likely to be excess demand in the market for good properties. Sellers can wait for offers on their property to reach (or exceed) their minimum selling price. A Buyers Market Conversely when demand both for new and older housing is weak and when there is a glut of properties available on the market, then the power switches to potential buyers. They have a much wider choice of housing available and they should be able to negotiate a price that is lower than the published price.
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Explain the main factors which might determine the elasticity of supply of labour to an occupation such as computer specialist (10)4 star(s)
An increase in wage rate in an inelastic labour market will have little effect on the amount of labour supplied however in the elastic market a small wage increase leads to a large increase in the quantity if labour supplied. Elastic Labour Supply Inelastic Labour Supply The main factor that affects the elasticity of supply in the computer specialists market is the amount of training and education needed in the market these cause large barriers to entry within the market.
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"Discuss the likely impact on the UK economic performance of government policies designed to make income more evenly spread"4 star(s)
For example, an extra �10 to a poor family will mean more than an extra �10 to a millionaire. Government expenditure can be used to alter the distribution of income, making particular use of the law of diminishing marginal utility. One way is for the government to provide monetary benefits to those requiring financial assistance. Another important area of government activity is the provision of goods and services, which aims to give citizens equality of opportunity on society. While this does help to reduce inequality, classical economists would argue that this reduces economic performance. Redistribution reduces the incentives of those in employment to work, thus reducing the incentive of those out of work to find work.
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The main advantages of a command economy is that services and goods provided are for the benefit of community and not to make profit and also these services or goods are accessible to anyone. Consumers benefit largely from a command economy as they have fixed prices and as it is all government run, it is operated securely, which is very reassuring to the public as they know they will not be deceived when buying good or services. Another advantage is having a low unemployment rate as the government can provide jobs which will increase GDP along with taxation revenue.
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State the assumptions of perfect competition. How does a perfectly competitive industry work in the short run and the long run? What makes perfect competition efficient?4 star(s)
A perfectly competitive market usually has a small number of firms that supply to a small number of buyers. The buyers and sellers in this market are also price takers set by the price equilibrium. * All firms in a perfect market should have an identical output, where all the firms produce a homogeneous product (where one good is as good as another) and these goods should be perfect substitutes for one another, in order for the consumers to view the products as identical as each other. * A perfect competition is assumed to have no barriers to the entry and exit of firms in the industry where the market should freely allow competition from new suppliers.
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Define "The multiplier effect" and explain how it works. Using practical examples of how the east and north London people and firms might benefit from a multiplier effect of the Channel Tunnel terminals.4 star(s)
Also to use less of non-renewable resources such as coal, oil which can not be recycled thereby it cause future growth to end. 2. Define "The multiplier effect" and explain how it works. Using practical examples of how the east and north London people and firms might benefit from a multiplier effect of the Channel Tunnel terminals. The multiplier effect is when changes in expenditure to the economy produces a more extensive output upon total economic activity, allowing expenditure to continue feeding the economy.
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There are two kinds of externalities: positive externalities and negative externalities. In the extract, cigarettes are negative externality, which means they have bad effects on others and those effects are not paid by the producers. For example, when people smoke, especially in public places, e.g. restaurants and department stores, they pollute the air rounded and threaten others' health. No one pays for the bad feelings caused by smokers and cigarettes. In this way, "market failure" exists. If the external costs could be measured and valued a new supply curve could be drown to present this.
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These offers encourage us, the consumers, to buy in bulk. This means Tesco are benefiting from economies of scale as they are selling more quantity of their products, and are then able to buy more, and hence reduce their average costs. Tesco also benefit from economies of scale in the long run, because as they are opening more stores, it means they are employing more and more people, who may otherwise be unemployed. The council recognise this, and therefore give Tesco cheaper council tax on their property, because of the employment of all these people.
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The supply curve is upward sloping, showing that firms increase production of a good as its price increases. This is because a higher price enables firms to make profit on the increased output whereas at the lower price they would have made a loss on it. Supply curve If in a market there is more supply than demand there is then a surplus of this good. A rise in the price of this good leads to a rise in the quantity supplied shown by a movement along the supply curve. The change in supply can be caused by a change in production costs, technology and the price of other goods.
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What is Inflation? Effects Inflation has on the Trafford Centre. How does The Bank of England control Inflation?3 star(s)
Several aspects cause inflation, for example, inflation can happen when governments print an excess of money to deal with a crisis. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. Another common cause of inflation is a rise in production costs, which leads to an increase in the price of the final product.
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and net exports (NX), which is the imports and exports balance (X-M). According to this, the equation for aggregate demand is: AD = C + I + G + NX. Factors forming AD: ** CONSUMPTION is the demand by households and unattached individuals for durables and non-durable goods. It is expressed as function of disposable income (amount of money left to consumers after taxes are paid), which is income - taxes (Y-T). It is because only that amount of money can be spent on goods. ** INVESTMENTS is the demand by business firms and some individuals, for new factories, machinery, computer software, education, housing, other structures and inventories.
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Discuss the effectiveness of supply side economics in improving the performance of the UK economy. Supply side economics is very effective on a long run basis, but may not be as good on a short run3 star(s)
In order to increase competition companies and firms would need to be privatised and deregulated, so that monopolist companies would have to face competition. Deregulation will force these monopolies into competition which will allow economic growth to improve. Also by having competition between the different companies will cause inflation to decrease as people would be now able to buy the same good or service but from a different and may be a cheaper company. This means that companies will need to reduce their prices in order to stay in the market or they will be shifted out of business.
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External influences Economy Interest rates Most businesses will need to borrow money. The interest rate will affect how much it costs3 star(s)
The company might have to borrow more money to pay for the interest rate going up. Competition Competition is where rival businesses aim their products at the same customers and try to win and keep their custom. Sainsbury's main competitors are tescos, Asda and Morrison's. They all sell food and household goods. Asda could sell more food than them so Sainsbury's would get less customers, Cadbury's main competition is Masterfoods, coca cola, Walkers and Rowntrees. If Cadbury in the next year didn't release any more chocolates or sweets and rowntrees released different sweets even though people would still buy Cadburys old ideas they would buy rowntrees new products.
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How is National Income derived? What is the GDP? What information does it give us about a nation? What is per capita income? If you wanted to know about the economy of a country, which would you consider more important, and why? (25 points)3 star(s)
The following excerpts are definitions of National Income and GNPas listed on this website http://members.shaw.ca/h-chartrand/Macro%20+%202.0.htm "National income is the sum of all factor earnings from production of current goods and services. Factor earnings are incomes of factors of production: land (rent), labor (salaries & wages), and capital (interest and investment income)..." "Gross domestic product (GDP) is the sum of all currently produced final goods and services sold at market prices. "At market prices" is the way GDP can measure, in a single number, the production of apples plus oranges plus railroad cars plus all of the millions of other goods and services produced in a major economy.
- Word count: 580
Using AD/AS analysis, describe and illustrate two cases where economy gets stuck in recession and does not return quickly to its natural level of output.3 star(s)
Demand shock In this essay, we assume in short-run, all prices are fixed. Therefore, the aggregate supply curve (SRAS) is horizontal. Also the level of output is determined by the amounts of capital and labour, so in long-run the AS curve (LRAS) is vertical and the output is at its natural level. Suppose there is a increase of the real interest rate and this encourages people to save more instead of spending-causes the decrease of aggregate demand and the AD curve shifts inward from AD1 to AD2(Point A to B).
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The needs of the public are provided by the firms, which are based solely on supply and demand. The market itself chooses the best goods to produce and in return, it will create a win-win situation because it allows both themselves and the people to benefit. People's consuming habits and competition between firms will determine the price of the goods and meet the needs of the public, and firms will have the chance to gain a maximum profit. This can also allow the economy to respond quickly. Under a free-market economy, people who work harder will gain more in return.
- Word count: 832
Outline how consumer sovereignty determines patterns of production in an economy and discuss the factors that influence consumer choice.
If a product is not sold, it will not continue to be produced. Therefore, buyers ultimately decide what is produced. Consumer sovereignty therefore is important in the role of determining patterns of production in an economy. Through the operation of consumer sovereignty, consumer income levels determine the types of production that occur. As an economy becomes more wealthy and income levels rise, demand for luxury good also rises as well as the production of luxury goods.
- Word count: 435
he main factors that affect the consumers expenditure are level of income, price of the good or service, the price of substitute and complement goods, consumer tastes and preferences and advertising. and services
Thus, the consumer the demand of Coke. Thus if there is an increase in price and no change in the amount of income available to spend on the good, there will be an elastic demand will be sensitive to a change in price. Another factor that affects an individuals demand is the price of the good or service itself. For example, if the price of basic food increases, people will reduce their spending on gourmet foods that aren't necessities and staples. The price of substitute and complement goods is also a factor affecting individual demand.
- Word count: 609
As� pues teniendo en cuenta ya la cultura financiera de los americanos, podemos revisar que la cuesti�n de las hipotecas si no fue la causa m�s importante para que se generara esta crisis, fue uno de los mayores g�rmenes para su creaci�n. Debido a la poca vigilancia y control que ejerc�an las autoridades financieras Estadounidenses sobre los actores econ�micos del momento se dio inicio a esta burbuja, a trav�s de la compra y venta de las hipotecas inmobiliarias de los millones de Norteamericanos la cuesti�n era una red transacciones donde los inversionistas sedientos por comprar estos t�tulos, as� como intermediarios
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