Chapter 27 – Economic Issues
GDP (Gross Domestic Product): total value of output of goods and services in a country in one year.
Trade Cycle Diagram:
- Growth: GDP rising, unemployment falling
- Boom: too much spending, prices rising and
shortage of skilled workers
- Recession: GDP falls
- Slump: series, long drawn-out recession,
unemployment is very high
Change in economic indicators:
- Employment: affects ability to recruit and the incomes of customers
- Rising inflation: business costs increasing
- Increase GDP: means economy growth, more sales due to more income.
Inflation: increase in average price level of goods over time
Unemployment: people willing/able to work cannot find a job
Government objectives:
- Low inflation: rapid inflation causes real incomes to fall, and prices will rise
- Low unemployment: unemployment causes less goods being produced, and unemployment
benefit from government
- Economic growth: GDP increases, more goods produced than previous year. Falling GDP
means more unemployment and lower standard of living.
- Balance of payments: difference between country’s exports and imports, matters for a
country with a soft currency
Exports: goods/services sold by one country to people/businesses in another,
this brings money into the country.
Imports: goods bought in from other countries, must be purchased with foreign
currency so money flows out of country.
Exports – Imports
Deficit means could run out of foreign currencies so they may need to borrow,
and exchange rate depreciation so currency will buy less abroad
Government influence economy:
- Fiscal policy (taxes and government spending): any change by the government in tax rates or
public sector spending. Governments spend money on school, hospital, roads, etc; especially
when wanting to encourage growth.
Income tax: tax on people’s incomes, usually, the higher the income, the more
the tax. Affect businesses (mainly luxury) due to a lower disposable income.
Profits tax(corporation): tax on profits made by businesses. Increase causes: less
profit after tax so less to reinvest.
Indirect tax (VAT – Value Added Tax): add to prices of products, more expensive
Import taxes:
Tariff: tax on imports
Quota: limit on quantity of imports
- Monetary policy: change in interest rates, cost of borrowing money, by government or
central bank.
High interest means:
GDP (Gross Domestic Product): total value of output of goods and services in a country in one year.
Trade Cycle Diagram:
- Growth: GDP rising, unemployment falling
- Boom: too much spending, prices rising and
shortage of skilled workers
- Recession: GDP falls
- Slump: series, long drawn-out recession,
unemployment is very high
Change in economic indicators:
- Employment: affects ability to recruit and the incomes of customers
- Rising inflation: business costs increasing
- Increase GDP: means economy growth, more sales due to more income.
Inflation: increase in average price level of goods over time
Unemployment: people willing/able to work cannot find a job
Government objectives:
- Low inflation: rapid inflation causes real incomes to fall, and prices will rise
- Low unemployment: unemployment causes less goods being produced, and unemployment
benefit from government
- Economic growth: GDP increases, more goods produced than previous year. Falling GDP
means more unemployment and lower standard of living.
- Balance of payments: difference between country’s exports and imports, matters for a
country with a soft currency
Exports: goods/services sold by one country to people/businesses in another,
this brings money into the country.
Imports: goods bought in from other countries, must be purchased with foreign
currency so money flows out of country.
Exports – Imports
Deficit means could run out of foreign currencies so they may need to borrow,
and exchange rate depreciation so currency will buy less abroad
Government influence economy:
- Fiscal policy (taxes and government spending): any change by the government in tax rates or
public sector spending. Governments spend money on school, hospital, roads, etc; especially
when wanting to encourage growth.
Income tax: tax on people’s incomes, usually, the higher the income, the more
the tax. Affect businesses (mainly luxury) due to a lower disposable income.
Profits tax(corporation): tax on profits made by businesses. Increase causes: less
profit after tax so less to reinvest.
Indirect tax (VAT – Value Added Tax): add to prices of products, more expensive
Import taxes:
Tariff: tax on imports
Quota: limit on quantity of imports
- Monetary policy: change in interest rates, cost of borrowing money, by government or
central bank.
High interest means:
