GDP definition
GDP measures the value of all goods and services produced by UK firms within the UK. It is a measure of the UK’s national output/value of all the goods and services produced in an economy. For example Famous Grouse whisky produced in Scotland. It is used by many nations as the main measure of economic activity.
how is inflation calculated (6)
step 1: complete the living costs and food survey to find out what average families buy
step 2: create a basket of several hundred goods and services from the conducted survey
step 3: give a weight to each item in the basket based on the amount typically spent
step 4: check prices from the last time
step 5: calculate percentage change in prices
step 6: add up all the percentage changes and calculate an average change. this is inflation
how is the monetary policy used to control inflation
demand pull inflation - increasing interest rates to deter consumers/firms from borrowing
cost push inflation - lower interest rates for firms tomorrow, lowering their costs
what is tightened monetary policy
Tight monetary policy aims to slow down an overheated economy by increasing interest rates.
compare the UKs current rate of inflation with the bank of England’s target rate of inflation.
the UK’s current rate is 3.9% whereas the BOE’s target rate is 2%
the current rate of inflation is falling whereas the BOE prefers it to be steady
explain the impact of interest rates on individuals and firms.
reducing interest rates means individuals are encouraged to spend rather than save. this increases demand for goods and services meaning that business can increase their sales and profits
reducing interest rates means that firms can borrow money with less risk this can allow them to invest in growth and employment which can create more job opportunities which improves the overall living standard
full employment definition
full employment occurs where virtually all who are able and willing to work are employed. this does not mean zero unemployment
positive effects of high unemployment on an economy (4)
Firms have more choice when hiring
Entrepreneurial activity may increase and it may be an opportunity for retraining
firms may have reduced costs due to workforce demanding fewer wage rises and workers may be willing to work for less thus improving profitability and growth potential
less risk of inflation due to less demand pull inflation. this can be good for exporting goods thus improving the balance of payments
negative effects of high unemployment on an economy (9)
- increase crime and civil unrest
- reduced income so less disposable income to spend on local businesses can lead to not enough sales and debt
- longer the person is out of work the greater the loss of skill and motivation
- increase in inequality meaning there is a rise in relative poverty
- some of the long term unemployed may leave the labour force permanently - fall in potential GDP
- may lead to rise in government borrowing due to an increased burden on the healthcare system
- fall in business profits resulting in a reduction in revenue from corporation tax
- reduced tax revenue e.g. les income tax due to less people working
- increased spending on JSA which can increase budget deficit
describe the difficulties of measuring a country’s income (6)
- errors and omissions occur in collecting and calculating statistics
- people deliberately hide what they earn or what they produce in order to avoid tax or claim benefits
- under-recording of output were the production of some goods and services are not recorded because they are not exchanged for money e.g. housework
- over- recording of output where double counting occurs
- over recording of income when transfer incomes are included
- there is the problem of changing values of money. therefore this must be considered when comparing national income from year to year.
benefits of economic growth (3)
- improved standard of living if the income is shared among all sections of the population if not this creates inequalities
- increased productivity can allow more to be produced in less time, this reduces hours of work which can increase holiday lengths
- increased income for those in employment resulting in higher tax revenues from the government. Improved pubic services.
costs of economic growth (2)
- consumer standard of living may fall as capital goods are made instead of consumer goods
- can cause external costs such as pollution, depletion of non renewables
definition of globalisation
when organisations develop international influence or start operating on an international scale.
goods and services, social economic and cultural influences becoming similar in all parts of the world. profits can be declared anywhere in the world
Advantages of imposing barriers to trade (6)
- protecting employment in industries affected by foreign competition
- protecting employment in infant industries which havn’t grown big enough to compete
- maintaining industries which are considered strategic e.g. food supplies
- reducing imports in order to improve a weak balance of payments
- helping the environment e.g. banning import of hardwoods from the tropical rainforest
- protecting consumers from harmful products e.g. illegal drugs
disadvantages of imposing barriers to trade (5)
- retaliatory action being taken against a countries exports
- protection reduces competition which allows inefficiencies leading to rising costs for consumers
- consumer choice is reduced
- trade volume is reduced leading to unemployment in industries depending on exporting output
- political disagreements arise between countries
theory of absolute advantage
states that if two countries are each more efficient in a product than the other than each country should specialise in producing the product they are best at and they should trade. gained due to climatic advantage or skilled labour. AA should lead to increased world output and improved living standards
theory of comparative advantage
states that even when a country has absolute advantage in no products it will benefit to specialise in the products in which its disadvantage is least
explain reasons for multinationals may choose to locate in Scotland (5)
- natural resources
- access to english speaking labour which is the international business language making dealing with workforce easier. Improving productivity levels
- political stability allows business to plan ahead and make longer term investments a safer option
- relatively weak unions can result in less working days lost due to strike
- access to subsidies in the form of government grants which can reduce the cost of production
benefits to the UK economy of hosting multinational (6)
- increased employment opportunities for local people which increases the standard of living and those with income meaning government has more tax revenue greater public spending
- multinational can outsource so greater demand for local businesses e.g. cleaning improving the economy
- increasing customer choice for locals
- can learn new skills and techniques which can improve production efficiency
- competition can force local business to become more efficient leading to cheaper prices and better quality for consumers
- can improve infrastructure benefiting a whole community
draw a diagram showing supply and demand shortages
draw national, income equilibrium diagram
- When the total injections equal total withdrawals the level of national income is in equilibrium.
- Injections - this is money entering the economy. When injections are greater than withdrawals the amount of money in the circular flow of income increases, resulting in Economic growth.
- Withdrawals - this is the money leaving the economy. When withdrawals are greater than injections the amount of money in the circular flow decreases, resulting in a fall in real GDP.
what is national income
its the total value of a countries final output of all goods and services produced in one year.
