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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.
Free market economy is also known as "Laissez-Faire" economy, which means government will not give people assignment to accomplish and all the decisions made are based upon pure self-interests, which is the most efficient incentive for individuals. The incentive is the "invisible hand" of the market, as Adam Smith described. He argued, "Although economic actors pursued their own self interest, the result would be an allocation of resources in the economy which would be in the interests of society as a whole"(Anderton A.
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The number of mills dropped and so did the amount of workers. But not all in the same area. All the photos agree that the mills disappeared. I wonder why this happened? Properly reasons due to the World War 1 the men went to wars there were labor shortages. They ended up having ships blown up by German u-bouts as they tried to cross to England. Cotton cloth exports dropped sharply. World war 1 brought even more problems. Countries stopped buying cloth from England. This made English farmers run out of money. The foreign countries begin to grow their own cotton goods then they started to sell it to the English market.
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Problems could well arise if Britain loses interest rates as a tool for its own economic objectives. The past few decades have shown we need all the measures we can to keep control of the economy! To illustrate this problem, let us suppose that there are inflationary fears in Germany and France, two influential member countries, but not in Britain. In response the ECB is likely to set high interest rates to dampen economic activity and curb inflation. However, in Britain this dampening of activity is not needed as there is little inflationary pressure. The high interest rates set by the ECB merely serve to slow down the British economy.
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The reason the Reserve Bank Of Australia (RBA) reduced the cash rate by 25 basis points from 5% to 4
The prolonged slowdown and recession in several of Australia's South-east Asian trading partners, is likely to reduce demand for Australia's exports, reducing AD, increasing unemployment and causing a slowdown in economic growth. The global slowdown is likely to create uncertainty in the economy, reducing business and consumer sentiment, resulting in lower levels of business investment and expenditure on durables by consumers. Thus decreasing investment and consumer expenditure, reducing AD. Therefore the RBA cut the cash rate as a pre-emptive strike against the likelihood of falling aggregate demand and a slowdown in economic growth in the Australian economy.
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Imported goods and some imported services can also be taxed. If your business sells more than the yearly amount then you will need to register for VAT. Capital Gains Tax is charged on the sale or disposal of assets where the total Capital Gain over the financial year is over the yearly amount. The Finance Act 1965 introduced a new tax on companies, Corporation Tax. This is a tax applied to profits of limited companies. The Standard Rate of Corporation Tax is 30% BENEFITS, SUBSIDIES AND GRANTS Some businesses receive theses subsidies and benefits etc.
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The entrepreneur is on a mission, ignoring others who say what is or is not possible, determined to move forward, out of the usual into the unknown. The mindset of an entrepreneur is as an optimist, seeing not what cannot be, but what might be. As Allen states, an entrepreneur is going out of his circle of comfort into an area that he might not be comfortable in. He is determined to reach his goal even if it means venturing away from the current thought process of the rest of the world.
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The government intends to further stimulate the economy by spending more and by taxing less. Lastly there still are some concerns about Britain's economy concerning with other factors such as the mouth and foot disease. To understand better the reasons for the British government's decision in reducing the interest rate, and how this could refrain England from suffering from the overall global economic downfall, we need to consider the interest rate as an aggregate demand shifter. For definition aggregate demand is a schedule or curve showing the various amounts of goods and services that domestic consumers, businesses, government, and foreign buyers collectively purchase at each price level.
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I will therefore be looking at how the Indian government can best maximise its economic growth. I wanted to study this topic as I have always wondered why some countries have grown economically at a higher rate than other countries that are better equipped with factors of production. There are of course good and proper reasons why this should happen. However we rarely study things beyond the theoretical and in this coursework I would like to look at the practical aspects of economics and how it is joined and affected by political decision making in a country.
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The spurt in the range and availability of consumer goods that followed seemed to justify this measure. But the masses whose incomes were being squeezed by limited employment opportunities and inflation were unimpressed by the new cars and refrigerators that were now available for purchase. And the increasing trade deficit also had it's detractors. Responding to this pressure in 1996, sections of the UF campaigned vigorously against the negative effects of such unbridled external liberalization. But contrary to the UF's pre-election pledges, the UF Finance Minister, Mr Chidambaram showed no compunctions in accelerating the process of external liberalization by drastically lowering import barriers.
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The global economy is an uneven playing field. Evaluate this term with reference to the main economic groups that have developed historically and politically.
Australia is the exception of the north /south divide because the line drops just east of Indonesia. Also in the northern precinct of the economy are second world countries. These consist of socialist groups where government and economic control is paramount. Less economically developed countries (LEDC's) and some more economically developed countries are found in this category. Communist country collapses have also enabled countries such as those in the break up of the Soviet Union in 1990 to move towards capitalism and the first world. Today the second world is a decreasing feature with only such countries as China, North Korea, Vietnam and Cuba remaining part of the second world.
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Should the UK join the Euro or to stay an independent country with their own currency and economic? This question has been very topical for the last years and still has not got unanimous answer. The are a lot of advantages for joining the Euro Zone. Firstly, with the British help the European Economy will succeed and grow faster and obviously this will make the trade links stronger. This will bring the Euro to more real rivalry with US dollar, which in the nearest future could replace the role of the US dollar.
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Surveys done by the National Statistics have been able to provide evidence that there is an imaginary north-south divider, identifying that people in the south are better off than those in the north. This graph shows the rise in price of properties in the UK There are many reasons that are able to explain why there is such a difference in price, which would be outlined below. In the UK, demographical studies have shown that there is an uneven distribution of population and employment.
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It is the percentage annual increase in the economy's capacity to produce: the rate of growth in potential output. Two of the major factors contributing to potential growth are: * An increase in resources - natural resources, labour or capital � An increase in the efficiency with which these resources are used, through advances in technology, improved labour skills or improved organisation. There will be an increase in space capacity and an increase in unemployment if the potential growth rate exceeds the actual growth rate.
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How these choices are made depends on the nature of the economic system. A free market economy is the one in which means of production namely land, labour, capital and enterprise are privately owned by individuals and firms. A market is a mechanism that allows the exchange of goods and services through bringing together the buyers and sellers of those goods and services. A market mechanism can determine the most desirable output given consumer wants. The USA and Hong Kong are new examples of market economies where firms decide the type and quantity of goods to be made in response to consumers. The competitive market acts to achieve the best possible social outcome.
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Derive the LM curve under the theory of liquidity preference. Does this depend on the real or nominal interest rate?
This is because, the interest rate is the opportunity cost of holding money. The money we hold, we have to forgo the interest that we would have earned had we purchased bonds, or invested it into a savings accont paying a rate of interest r. Consequently, the demand cuve for real money balances is downward sloping; at higher rates of interest, the opportunity cost of holding money is higher, and consequently we hold less real money balances at higher rates of interest.
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By making wages higher you are helping to increase the incentive to work. Before the minimum wage came along, lots of people were not interested in getting off of benefits back and into employment simply because they would be going into badly paid jobs which didn't really have enough of an incentive to make them want to be coming off of benefits. This is called voluntary unemployemnt. Obviously by making a minimum wage which is more than benefits, you are making it worthwhile for people to actually go out and look for a job so they can have a higher income.
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In order to gain a better quality of life, western technology is imported. Capital, Labour and Entrepreneurship are imported from the west to improve healthcare, education, infrastructure, and to develop foreign subsidiaries of western companies. This costs money, which countries such as Tanzania have very little of. Thus, they need to borrow money from Western Governments. The initial infrastructure and level of production is often low in such societies. There is often a long time lag between the initial rush for development and the break-even point, where the government can begin to pay off the debt that it has run up.
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There was also a very large population because of the number of immigrants who came to America. It was seen as a 'land of opportunity' and attracted a wide variety of people with different skills and backgrounds. They brought with them new ideas and provided a large workforce, and there were skilled people to develop new technology and run businesses. There was also a lot of cheap, easily employable unskilled labour available. The massive population was also potential customers to buy goods.
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For example reducing tax may result in consumers having more income, which may result in them buying more imports. Finally, taxes enable governments to redistribute income and wealth from rich groups in society to poorer groups, resulting in a more equitable system. Examples of this include Social Security benefits and pensions. "In recent years UK governments, irrespective of political barrier, have changed the structure of UK taxes." b) Why have they done this? What have been the consequences? There are two classifications of taxes.
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If Elecrox PLC were to manufacture their items in Britain, they would have to pay their workers at least the minimum wage of approximately £6,000 a year which is a lot more than the wages in other countries which have been mentioned above. Another factor which Elecrox PLC would benefit from if they committed to manufacturing their products abroad, is that the expense of raw materials will be reduced as natural resources are found more easily and more abundantly in countries such as China, Brazil and Saudi Arabia than in England.
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resources currently present in the economy * X is a point inside the curve and it shows a sate in which there is inefficiency in the economy since it is not operating at its maximum production potential (on the curve) * Y is a point outside the curve and it shows a point currently unachievable (with the current state of resources in the economy) * The PPC can be shifted outwards when economic growth takes place, due to technological advancements or an increase in the quality or quantity of resources in the economy * Once it has shifted outwards, the point Y becomes achievable (and thus the total output of the economy increases, the reason for economic growth)
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I believe that the market economy best meets the needs of society. One aspect of quality of life that the market economy addresses really well is political freedom. Because politics is such a ?dry? subject that very few people enjoy, a country?s leaders are not necessarily the people best fit for the task; they are simply the ones who are interested in doing it. Therefore, having little government involvement means that the people who would be better fit for such a task have the oppourtunity to participate in the politics of a country without so much effort, This system most accurately reflects the views and trends of the general public than one with more government involvement.
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These movements in supply and demand would results in more importing and less exporting. In free floating exchange rate regimes it is purely economic performance factors that the effect long-term movement in exchange rates. Monetary policy will be used to control inflation. For example, this is shown in the graph as a rise in currency supply means that there will be a subsequent depreciation in the market value or the currency (Moroccan dirham). Exchange rate effects on Supply and demand of currency Source: http://tutor2u.net In a managed float the country does not completely ignore what is happening in the currency market.
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The economic polices used by the the government are: 1. Fiscal Policy ? taxes and government spending 2. Monetary Policy and interest rates 3. Supply Side Policies Fiscal Policy: Fiscal Policy is any change that the government makes in tax rates that are put on businesses or public sector spending. These are the most common taxes: 1. Income Tax: This is a tax on people?s income. The higher the income the greater the amount of tax. This affect businesses because individual taxpayers would have a more limited income. The most affected businesses are the ones that produce luxury goods.
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