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Table of Contents Table of Contents .................................................................................................................................................... 2 Year 10 ......................................................................................................................................................................... 3
1. Money .................................................................................................................................................................................. 3 2. Work .................................................................................................................................................................................. 15 3. The National and Global Economy ......................................................................................................................... 19
Multinational companies (MNCs) - A corporation that has its facilities and other assets in at least one country other than its home country. ....................................................................................................... 23 Year 11 ....................................................................................................................................................................... 25
1. Managing the Economy ............................................................................................................................................... 25
2. Current Economic Issues ................................................................................................................................ 31 Global warming and its effect on different economies and societies .............................................................. 31 Developing economies: India and China – issues of growth and the impact on developed countries 32 Dominant firms: impact on consumers and producers plus issues of control and regulation ................ 32 Poverty: disparities in living standards and the ethical issues that arise from the implications of choice for society ................................................................................................................................................................ 33
Thanks for reading ................................................................................................................................................ 34
Year 10
1. Money
1.1 Understanding the Personal Lifecycle • Stages within the lifecycle • Needs and wants.
Key terms • Borrowing - getting money from a lender that must be repaid in the future (e.g. a mortgage) • Debt - the amount owing from funds borrowed • Factors of Production - land, labour, capital, entrepreneurship • Income - total money received from a person’s wages/salary, interest and other sources • Pension - a contract for a fixed sum to be paid regularly to a person, following retirement • Personal lifecycle - major stages of life, Childhood (0-12), Adolescence (teenagers), Young adult,
Middle adult (middle age), Late adult (old age) • Savings - putting money aside for later use. • Tax allowance - sums deducted from total income before income tax is calculated • Tax credit - state benefit paid to employees through the tax system • Unemployment - available for work but without a job • Welfare benefits - financial or other assistance to an individual or family from the government.
Candidates should understand the idea of a personal lifecycle and the different stages within the cycle. Candidates should appreciate how at each stage, individuals will experience changes in their income, expenditure, savings and debt. Candidates should be aware of the difference between needs and wants and how these change over the personal lifecycle.
Key concepts Changes over the cycle
Life cycle stages
Income Expenditure Borrowings and debt
Savings Government assistance
Childhood Pocket money Daily expenses N/A Pocket money
Child benefit
Adolescence Part-time job Clothes, mobile phones
N/A Part-time job
16-19 Bursary Fund – (replaced EMA), student loans
Young Adult First job, savings
Car, house, holidays
Car loan, credit cards, first house
Saving or deposit on house
Working Tax Credits, Child Tax Credit
Middle Adult Job, investments, savings
Car, house, holidays, university fees for children
Credit cards, home improvements
Saving for university fees
Working Tax Credits, Child Tax Credit
Late Adult Pension, investment, savings
Healthcare Home care Paying for healthcare
Pensions, state or private
The difference between needs and wants
• A need is a necessity you cannot do without
• A want isn’t a necessity but is something you would like to have.
1.2 Making Decisions • Choices and opportunity cost • Costs and benefits
Key terms Benefits - advantages of a particular choice Costs - drawbacks, financial or non-financial of a particular choice Demand - consumer's desire and ability to pay a price for a specific good or service Economic problem - limited resources are available to satisfy all human wants and needs Needs - things people need to survive Opportunity Cost - the best alternative forgone Scarcity - society has insufficient productive resources to fulfill all human wants and needs Wants - the things that make life more enjoyable
Key concepts Economic choices – examples
Host the Olympics VS build more hospitals
Candidates should understand that as income is a scarce resource and wants are unlimited, choices need to be made. Candidates should understand the importance of weighing up costs and benefits and considering opportunity costs when making decisions.
1.3 Choosing to Spend • Demand and the personal lifecycle • Markets and prices • Effects of competition
Key terms Competition - the effort of securing the business of a customer by offering the most favorable terms Demand - a consumer's desire, willingness and ability to pay a price for a specific good or service. Disposable income - total income minus taxes Equilibrium price - the point at which quantity demanded and quantities supplied are equal Markets - is the process by which the prices of goods and services are established Movements in demand - when a change in price causes the quantity demanded to change Movements in supply - when a change in price causes the quantity supplied to change Shifts in demand - when there is a change in something other than price, resulting in a new demand curve Shifts in supply - when there is a change in something other than price, resulting in a new supply curve Supply - the amount of a product that producers and firms are willing to sell at a given price with all other factors being held constant
Key concepts Factors that affect spending on a particular good
• Price of good • Price of substitute goods • Price of complement goods • Income • Fashion • Advertising • Interest rates/cost of borrowing • Household wealth • Availability of credit • Consumer confidence
Candidates should understand the meaning of demand and the factors that affect spending. Candidates should appreciate how moving to different stages in the personal lifecycle result in changes in demand for different types of goods and services. Candidates should have a basic understanding of how markets for goods operate and understand the reasons why prices change. Candidates should understand how businesses compete and the advantages and disadvantages of competition for consumers.
Shifts in demand – Where quantity changes, but not caused by price changing
• Substitutes • Complements • Income • Fashion • Advertising
Shifts in supply – Where quantity changes, but not caused by price
• Changes in production costs - Wages, raw materials, energy, rents, interest rates, etc. • Changes in technology • Weather, natural conditions (important for agricultural supply)
How do firms compete? • Price - not too high or too low • Quality • Innovations e.g. New ideas • Promotions e.g. Special offers • Advertising • Branding e.g. Creating an image / identity (Nike)
The advantages of competition for consumers.
• Lower prices • Greater choice • More innovation • Discourages monopolies developing
The disadvantages of competition for consumers
• Too much choice for consumers may be confusing • Lack of profits for business • Loss of jobs for local business
1.4 Choosing to Save • Reasons for saving • Methods of saving • Choosing where to save
Key terms Building society - financial institution owned by its members as a mutual organisation. National Savings and Investments (NS&I) - state-owned savings bank Cash ISA - savings account where no tax is payable on the interest Shares - a unit of ownership in a corporation Dividend - a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders Unit Trust - collective funds that allow private investors to pool their money in a single fund Stock market - market in which shares of publicly held companies are issued and traded Net interest - the rate of interest earned by a bank account or an investment after tax has been paid Gross interest - money received in interest on bank accounts or investments before tax is paid Annual Equivalent Rate (AER) - take into account compound interest (where you earn interest on your initial investment, plus any interest you've previously accumulated)
Key concepts Main saving methods available
• Easy access accounts • Ethical savings • Fixed rate bonds • Cash ISA
How does the stock market work?
• Where you can buy and sell shares in a company
Candidates should understand why people save and be aware of the main methods available, e.g. using banks, building societies and National Savings. Candidates are only required to have a basic understanding of shares and unit trusts and the working of the stock market. Candidates should be able to recommend suitable methods of saving and other financial products for different situations and justify their recommendations, appreciating the risks and rewards of each method. Candidates should know the difference between net and gross interest and understand the meaning of the Annual Equivalent Rate (AER).
• When a company makes shares available to buy they are called stocks and this is what you are trading
• When you buy a stock it means that you own a very small piece of the company. • You are hoping that the value of the company will grow higher than the price you purchased the
stock for, thus maybe selling for a profit at a later date • The price is determined by demand and supply of that stock on the market • Some investors hold onto shares, and collect regular dividend payments, as a way of earning
income. Investments and the three categories of risk:
• High risk – You normally need a large amount of money to lose. High risk investors may put a high portion of their money in stocks and shares, because although this is a risky, it has potential for the greatest rewards.
• Medium risk - medium risk investors might be those nearing retirement. A medium-risk investor would generally diversify or spread their investments, i.e. shares, bonds, property and cash, while still trying to maximise returns.
• Low risk - a low risk investor would typically be an older person, approaching retirement, or already retired. Low risk investments are normally cash (for example investing money in a savings account) or government bonds, rather than stocks and shares
1.5 Choosing to Borrow Money • Reasons for borrowing money • Methods of borrowing money • Choosing where to borrow money • Impact of changing interest rates.
Key terms Mortgage - agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the homeowners property, until the debt is repaid Credit card - a small plastic card issued by a bank, building society, etc., allowing the holder to purchase goods or services on credit Store card - credit card issued by a large store, which can only be used for purchases in that store Bank loans - banks often lend money to customers for things such as car purchases, holidays, home improvements etc Hire purchase - under a hire purchase contract, the buyer is ‘loaned’ the goods and does not obtain ownership until the full amount of the contract is paid. Overdraft - an extension of credit from a lending institution when an account reaches zero APR, Annual Percentage Rate - The APR calculates the total amount of interest that will be paid over the entire period of the loan. It must also take into account charges which the borrower has to pay in order to obtain the loan and during the loan period (such as lenders fees, valuation and legal fees etc). Interest rate – The cost of money and the reward for savings
Candidates should understand why people borrow money and be aware of the main methods of borrowing, e.g. mortgages, credit/store cards, personal loans, hire purchase and overdrafts. Candidates should be able to select suitable methods of borrowing for different situations and justify their recommendations. They should take into account the degree of risk involved and the importance of the Annual Percentage Rate (APR). Candidates should be aware of the effects of changes in interest rates on borrowers and savers.
Key concepts Why people borrow money
• House purchase • Big item of spending, for e.g. a car • Urgent cash needed to last until payday • Emergency house or car repairs • Consolidate debts
Suitable methods of borrowing for different situations
• Overdrafts: Short-term borrowing, emergencies, unforeseen costs • Credit cards: Short-term borrowing, security of online purchases (store cards are also a type of
credit card) • Personal loans (unsecured): Larger amounts of money for specific purchases such as a new car • Mortgages: House purchase, remortgaging for better terms/interest rate, a further advance
(additional secured loan) on your original mortgage • Payday loans: Short-term cash loans until you next get paid • Unregulated & doorstep loans: Short-term cash loans
The effects of changes in interest rates on borrowers and savers.
• Interest rate rise – Good news for savers, bad news for borrowers • Interest rate cut – Borrowers happy, savers unhappy
1.6 Managing your Money • Benefits of financial planning and budgeting • Planning for uncertainty • Moral and ethical issues • Influence of government on personal finances
Key terms Redundancy - when and employer dismisses a worker because they are no longer needed Unemployment - when a person who is actively searching for employment is unable to find work. Ethical investing - using ethical principles as the main factor when investing Developing countries - a poor agricultural country that is seeking to become more advanced economically Government benefits - an allowance paid by the government as for sickness, unemployment, etc, to which a person is entitled under social security or the national insurance scheme
Key concepts The benefits of financial planning and budgeting
• Gives you control over your money • Avoid spending unnecessarily • You know where your money is going • Helps you organize your spending and savings • Enables you to save for expected and unexpected costs • Provides you with an early warning for potential problems • Helps you determine if you can take debt and how much • Avoid fees and charges for loans and overdrafts
Candidates should understand the benefits of financial planning and budgeting, including debt management. The timings of such planning should be linked to changes in the personal lifecycle. Candidates should be aware of how factors such as redundancy, unemployment and sickness/disability, changes in interest rates and prices affect a person’s budget and how financial planning can make some allowance for these uncertainties. Candidates should explore some of the moral and ethical dilemmas that arise when making spending, saving and borrowing decisions, e.g. buying shares in companies making armaments or buying products from companies that exploit workers in developing countries. Candidates should understand how taxation and government expenditure on benefits and services can affect an individual’s income, saving and expenditure during the personal lifecycle.
Ethical investing – What ethical investors may look for; • Environmental policies • Pollution prevention • Conservation and recycling • Treating workers fairly
Ethical investing – What ethical investors may avoid
• Defence and arms industries
• Animal cruelty • Involvement in countries with oppressive regimes • Alcohol and tobacco • Damage to the environment • Gambling
Key government benefit spending
• State pension • Housing benefit • Disability living allowance • Income support • Jobseekers allowance
2. Work
2.1 Understanding the Purpose and Nature of Work • The meaning of work • Specialisation and interdependence • Impact of ICT on work.
Key terms Specialisation - method of production where a business or worker focuses on the production of a limited range of products or services in order to gain greater degrees of efficiency Home working - people who do the work they are employed to do either at home, or in other premises of their choosing
Key concepts The reasons why people work
• Provides money for needs and wants • Challenge and recognition • Social aspects
Advantages of specialisation
• Increases in efficiency • Time saved • Less mistakes • Costs of production reduced
Disadvantages of specialisation
• Boredom of job repetition • Low pay for low skills • Less skills, means less chance of promotion
Candidates should understand what is meant by work and the reasons why people work or do not work. Candidates should understand how work is a key part of economic activity in which goods and services are produced to satisfy needs and wants. Candidates should be aware of the specialised nature of work and understand the advantages and disadvantages of specialisation to the worker. Candidates should be aware of how developments in Information Communication Technology (ICT) have led to the decline of some industries and the growth of others as well as affecting the nature of work, such as the development of home working.
2.2 Understanding the Reward for Work • How people are paid • How labour markets determine pay • Reasons for differences in pay • The influence of government on pay and working conditions.
Key terms Income tax - a tax on all financial earnings National insurance - the system of compulsory payments by employees and employers to provide state assistance for people who are sick, unemployed, or retired Pension - type of retirement plan where an employer makes contributions toward a pool of funds set aside for an employee's future benefit Gross pay - total of an employee's regular pay including allowances, overtime pay, commissions, and bonuses, and any other amounts, before any deductions are made Net pay - the remaining amount of an employee's gross pay after deductions, such as taxes and retirement contributions, are made Derived demand - the demand placed on one good or service is dependent on another Labour market - the market in which workers compete for jobs and employers compete for workers Minimum wage - the minimum pay per hour almost all workers are entitled to by law
Candidates should understand the main methods by which people are paid and the different items that appear on a pay slip including: deductions made for income tax, national insurance and pension contributions. Candidates should understand the difference between gross and net pay. Candidates should understand how the supply of labour is affected by a person’s decision to work or not to work, and that this is influenced by both monetary and non-‐monetary considerations, e.g. incentives, location, gender and race, taxation, state benefits etc. Candidates should understand that demand for labour is derived from the demand for the good or service produced, and that the supply and demand for labour will affect the amount that people are paid. Candidates should understand what can happen to wages when there are surpluses or shortages of labour and the benefits and limitations of the labour market. Candidates should be aware of the role of government in protecting workers, e.g. minimum wage, maximum working hours, health and safety and their effect on workers.
Key concepts 10 best-paid jobs with average pay (The Guardian & Office of National Statistics, 18th December 2013)
• Head of major organisations (£84,453)
• Aircraft pilots (£78,356) • Marketing directors (£68,438) • Transport associate professionals (£64,889) • Medical practitioners (£63,677) • Company lawyers (£63,484) • Public relations directors (£60,486) • Senior police officers (£57,664) • Information Technology directors (£55,426) • Senior officers in protective services (£54,539)
2.3 Understanding the Consequences of Unemployment • Impact of unemployment on individuals and society • Impact of government on unemployment.
Key terms Unemployment - when a person who is actively searching for employment is unable to find work Jobseeker’s Allowance (JSA) - is at least £57.35 a week, but depends on circumstances. To qualify for JSA you usually have to be, 18 or over (but below State Pension age) and able and available for work
Key concepts The Costs of unemployment
• Low standard of living • Drain on savings • Loss of skills • Effect on families/divorce • Depression and mental health problems • Higher crime
Candidates should understand the monetary and non monetary costs of unemployment to the individual and to society. Candidates should understand the reasons why the duration of unemployment might vary between individuals. Candidates should understand why government is concerned about unemployment and the benefits available to those who are unemployed, linking these to the personal life cycle. Candidates should have a basic understanding of how policies relating to education, training and the provision of tax allowances and state benefits are used to help those who are unemployed.
• Higher government spending on benefits • Reduces economic growth
To get Jobseeker’s Allowance (JSA) you must
• be 18 or over but below State Pension age - there are some exceptions if you’re 16 or 17 • not be in full-time education • be in England, Scotland or Wales • be able and available for work • be actively seeking work • work on average less than 16 hours a week • go to a JSA interview
https://www.gov.uk
Solutions to unemployment
• Better education to improve employability • Training, such as apprenticeships • Retraining for unemployed • Lower income tax rates to encourage people to work • Larger tax allowances so workers keep more pay • Lower state benefits to encourage people in work • Economic growth
3. The National and Global Economy
3.1 Understanding International Trade • UK’s exports and imports • Advantages and disadvantages of global trade
Key terms Exports - product or service sold abroad Imports - good or service brought into one country from another Visible goods - international trade in physical goods Invisible goods - the transfer of services, including finance and customer service Commodities - raw material or agricultural product that can be bought and sold, such as copper or coffee Globalisation - worldwide movement toward economic, financial, trade, and communications integration
Key concepts Top 3 goods exports (United Kingdom Balance of Payments - The Pink Book, 2013)
• Chemicals • Intermediate goods • Capital goods
Top 3 goods imports (United Kingdom Balance of Payments - The Pink Book, 2013)
• Intermediate goods • Oil
• Capital goods Trade in goods balance 2012
• -£107,893m
Candidates should be aware of the main types of exports from, and imports to, the UK economy. They should appreciate the importance of trade to the UK economy. Candidates should appreciate the advantages resulting from global trade such as lower prices, increased availability and choice of goods for consumers, but also the disadvantages in terms of unstable commodity prices and the adverse effects on producers in the UK, as well as the wider social and environmental impact.
Top 3 services exports (United Kingdom Balance of Payments – The Pink Book, 2013) • Business services • Financial • Travel/tourism
Top 3 services imports (United Kingdom Balance of Payments – The Pink Book, 2013)
• Travel/tourism • Business services • Transportation costs
Trade in services balance 2012 • +£73,992m
Advantages of trade
• Greater choice of goods available to consumers • Can specialise in what you are good at • Lower prices for consumers • More employment
Disadvantages of trade
• Jobs on some sectors may be lost • Instability in global markets • Unfair trade competition • Environmental problems
3.2 Exchange Rates • Effect on imports and exports • Effect on individual consumer
Key terms Exchange rates - the value of one currency for the purpose of conversion to another.
Key concepts SPICED
• An appreciation (rise) of the exchange rate should lead to a fall in demand for exports and a rise in demand for imports – the balance of payments should get ‘worse’
• Strong • Pound • Imports • Cheap • Exports • Dear
Possible impact of a strong pound (appreciation)
• Fall in exports overseas • Lower economic growth and unemployment • Cheaper imports • Lower UK inflation • Worsening trade balance • Good or UK holidaymakers and people travelling abroad
Possible impact of a weak pound (devaluation)
• Increase in exports overseas • Higher economic growth and unemployment • Imports more expensive • Higher UK inflation – Higher interest rates • Improved trade balance • Bad for UK holidaymakers and people travelling abroad
Candidates should understand the impact of exchange rates on the importing and exporting of goods and services. Candidates should be aware of other factors that affect the sales of imports to, and exports from, the UK. Candidates should understand the effect that exchange rates have on the individual consumer, e.g. how this will affect the cost of travelling abroad and goods purchased in the UK.
3.3 The Power of the Consumer
Key terms Sweatshop - shop or factory in which employees work long hours at low wages under poor conditions Fairtrade - product certification system that allows people to identify products that meet agreed environmental and labour standards Sustainable - continued with minimal long-term effect on the environment Ethical consumption - avoiding activities or organisations that do harm to people or the environment
Key concepts Main consumer activism tactics
• Boycotts • Petitions • Media campaigns • Protests
Government ethical policies • Ethical trading initiative to help the lives of workers across the globe • Reducing world poverty through aid and development • Polices to reduce climate change
Candidates should understand how the actions of consumers can impact upon the national and global economy through activities such as: boycotting the products of ‘sweat shop labour’, purchasing fair trade or locally sourced products produced in a sustainable, ethical and environmentally sensitive manner. They should appreciate the role played by government, e.g. in campaigning for reductions in World poverty.
3.4 Understanding the Impact of the Global Economy on Work • Effect of globalisation on the UK labour market • Mobility of labour • Impact of migration Key terms Multinational companies (MNCs) - A corporation that has its facilities and other assets in at least one country other than its home country. Globalisation - The worldwide movement toward economic, financial, trade, and communications integration.
Key terms Migration - the movement of people from one place to another EU Free Movement of labour - EU citizens are entitled to, look for a job in another EU country Brain drain – When skilled workers emmigrate to other countries
Key concepts Possible advantages of firms operating overseas
• Greater control in overseas market • Tailor product and services to local markets (localisation) • Bigger markets • Lower labour costs
Possible disadvantages of having an overseas office include:
• Costly to set up and maintain • Different tax, laws and regulations • Transport costs are higher
UK workers who have benefited from globalisation
• Workers with high skills and better education • Finance, services, medicine, media and high end manufacturing sectors
UK workers who have not benefited from globalisation
• Unskilled or lower skilled workers • Low end manufacturing and service sectors
Candidates should be aware of the advantages and disadvantages of firms operating overseas including the difference in labour costs. Candidates should understand the positive and negative effects that globalisation has on the UK labour market, e.g. causing unemployment in some sectors and regions, but creating job opportunities in others. They should be aware of the role played by government in regulating the migration of labour. Candidates should be aware of the nature of migration, including regional, European and global aspects. They should understand why migration occurs, the barriers to working abroad and how both emigration and immigration can affect, and has affected, the UK labour market.
Working in the UK – Current government policy • Workers from outside the European Economic Area (EEA) have to meet a certain number of points
to receive a Visa, with applicants grouped into five 'tiers'. Generally more points are available in the higher tiered groups
The Five Tiers
1. Entrepreneurs, investors, and ‘exceptional talent' 2. Skilled workers who are transferred to the UK by an international company, skilled workers where
there is a proven shortage in the UK, ministers of religion and sportspeople 3. Low-skilled workers filling specific temporary labour shortages 4. Students aged over 16 from outside the EEA who wish to study in the UK 5. Temporary workers including creative and sporting, charity, religious workers, and the youth
mobility scheme Why does migration occur
• Economic migration – To find work • Social migration – For a better quality of life • Political migration - To escape persecution or war • Environmental – From natural disasters
Possible impacts of immigration on the UK labour market
• More completion for jobs • Lowers wages • Creates unemployment, especially low skilled jobs • Creates more demand for goods and services thus creating jobs • More skilled workers • Fills labour shortgages
Year 11
1. Managing the Economy
1.1 Economic Objectives of the Government • Government objectives • Methods of measurement and trends over time • Government objectives, conflicts and ethical issues • The welfare state and its alternatives.
Key terms Economic growth - increase in the capacity of an economy to produce goods and services GDP - monetary value of all the finished goods and services produced within a country Full employment - all available labour resources are being used in the most economically efficient way, usually when unemployment is below 2% Inflation - the rate at which the general level of prices for goods and services is rising. The opposite of deflation Balance of payments - statement that summarises an economy’s transactions with the rest of the world Budget deficit – where government expenditures, on items such as health and social security, exceed revenue from mainly taxation Budget surplus – when government revenue exceeds spending Equity - the quality of being fair and impartial Equality - the state of being equal Ethical - Being in accordance with the accepted principles of right and wrong Welfare state - social system whereby the government assumes primary responsibility for the welfare of its citizens, as in matters of health care, education, employment, and social security.
Key concepts Possible economic conflicts
• High growth and low inflation • High growth and a Balance of Payments equilibrium • Low and low inflation • High growth and the environment • Healthy growth and equality
Candidates should understand the principal government objectives of economic growth, full employment, stable prices and balance of payments. Candidates should be aware of the methods available to measure economic performance, such as: inflation, economic growth, balance of payments, budget deficits and surpluses. Candidates should be aware that conflicts can arise when attempting to achieve these objectives and the links to equity and equality. Candidates should consider how ethical issues affect the achievement of government objectives. Candidates should be aware of the benefits and drawbacks of the welfare state and the alternative of individuals providing for themselves.
Advantages of the welfare state
• Everyone is entitled • Provides a safety net if you hit hard times • Everyone pays their share
Disadvantages of the welfare state
• People become dependant on benefits and welfare • Costs a lot for taxpayers • Institutions such as the NHS are too big and inefficient
Alternatives to the welfare state
• Increase the role of the voluntary sector • Restrict for people who really need it • Let the private sector run it
1.2 The Economy at Work • Types of economy • Market failure • Externalities • The concept of an economic cycle • Government revenue and expenditure • Fiscal policies • Monetary policies • Supply side policies.
Key terms Free market economy - market economy based on supply and demand with little or no government control Mixed economy - economic system that features characteristics of both free market and state control Market failure - inefficient allocation of resources in a free market Efficiency - level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs Externality - consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices Social costs - the private cost plus externalities added together Economic cycle - natural fluctuation of the economy between periods of expansion and contraction Boom - period of time during which sales of a product or business activity increases very rapidly Recession - a decline in GDP for two or more consecutive quarters Slump - prolonged recession Recovery - period of increasing business activity signaling the end of a recession Fiscal policy - means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy Monetary policy - central banks use of interest rates, money supply or exchange rates to influence the level of aggregate demand in the economy Interest rates - cost of borrowing, reward for savings. Base rates - the interest rate set by the Bank of England when its lends to other banks Supply side policies - government policy to enable as increase in the quantity or quality of goods and services produced by an economy
Candidates should be aware of the differences between free market and mixed economies. Candidates should understand market failure as the inability of the market system to allocate resources efficiently. Candidates should understand externalities as the difference between social costs (benefits) and private costs (benefits), and apply the concepts in a relevant context. Candidates should be able to explain the characteristics of the economic cycle: boom, recession, slump and recovery. Candidates need to consider how the government collects revenue and its patterns of expenditure. Candidates should be aware of how the government can affect levels of income and expenditure through fiscal policies. Candidates should be familiar with the role of the Bank of England in controlling the level of demand. Candidates should be aware of the use of interest rates to control inflation. Candidates should be familiar with supply side policies such as: education and training, incentives to work and competition policy.
Key Concepts Examples of market failure
• Pollution from factories • Drinking and smoking • Fast food litter • Vaccinations
Market failure intervention
• Legislate • Educate • Tax • Subsidies
Main government revenue items
• Income tax • Stamp duty, fuel, vehicle and excise duty • VAT • National Insurance
Main government expenditure items
• Social protection including tax credits • Health • Education • Debt interest
Contractionary fiscal policy
• The government reduce government spending and / or make taxes higher
Expansionary fiscal policy • Where the government cut taxes or/and increase government spending
Bank of England tools for controlling the level of demand in the economy
• Interest rates • Changing the money supply (currently quantitative easing) • Influencing the level of borrowing done by banks and other financial institutions • Changing the value of the pound (not currently done)
How does the Bank of England use interest rates to reduce inflation 1. Will increase the ‘base rate’, which is the rate at which banks and financial institutions borrow
money from the Bank of England 2. The banks and building societies raise their own lending rates accordingly 3. This makes the cost of borrowing higher, and increases the incentive to save 4. Both of these things reduce spending in the economy, lowering overall demand 5. Businesses will have to drop prices, leading to lower inflation
Main supply side polices
• Changes in taxation • Increased expenditure on training and education • Incentives for small businesses • Privatisation and Deregulation
1.3 The Role of the European Union (EU) • The effects of membership of the EU • The Euro • The impact of EU enlargement on the UK.
Key terms Single European Market - the free movement of goods, services, capital and persons is ensured and in which European citizens are free to live, work, study and do business. The Euro - official currency of the European Union's (EU) member states, introduced by the EU in 1999. EU enlargement - the process of expanding the European Union through the accession of new member states.
Key Concepts European Union Benefits
• Free movement of goods & services with tariffs • Higher incomes from greater trade • Free movement for citizens within EU • Larger market for business
Candidates should understand the significance of the EU as a Single European Market with a single European currency. Candidates should know the potential benefits and drawbacks of the UK joining the Euro. A detailed knowledge of the European Commission and European Central Bank is not required. Candidates should have an appreciation of the potential impact on the UK economy of EU enlargement.
Costs • Richer states have to contribute more for the development of poorer states • More EU competition • Payment for Common Agricultural Policy (CAP) • Influx of people from new EU countries • More regulations from Europe on business
Benefits of joining the Euro
• Reduced transaction costs • Easily compare Europe wide prices • Firms can expand • No more uncompetitive exchange rates with large trading partners
Reasons against joining the Euro
• ‘Menu costs’ – changing all of the ticket machines, etc • Lose control of monetary policy – done centrally by the ECB • Lose control of some aspects of fiscal policy • Dragged down weaker members of the Euro area • Lose devaluation of currency as a way to have ‘export-led’ growth
Benefits of EU enlargement • Cheaper labour costs • Bigger export markets • More consumer choice • Cheaper countries to operate in
Costs • UK unemployment • Pressures on social services and education • Cheap competition • Costs of developing new EU countries
2. Current Economic Issues Two topics will be chosen from this section each year for candidates to study in depth. One topic will be based on local, UK or EU issues and the other will relate to the global economy. Candidates will be expected to apply appropriately economic theories and concepts they have covered in Unit 11 and the Managing the Economy section of this unit. The aim of these topics is to encourage candidates to undertake investigative research into current economic issues and be able to analyse and evaluate the topics under consideration. Where possible, candidates are encouraged to investigate the local aspects of the issue.
Global warming and its effect on different economies and societies
Past exam questions Jun 13 State and explain two possible human causes of global warming (4) Explain two ways in which the economies of developing countries are affected by global warming. (6) Many economists think that there is often a conflict between economic growth and sustainability. Do you agree? Use Item C and what you have learnt from your investigation of this topic to give reasons for your answer. (14) June 14 Explain two costs to an economy of extreme weather. (4) Explain two actions that governments might take to reduce global warming. (6) The governments of developed economies, such as the USA, are expecting governments of developing economies to do more to help solve global warming. Do you think that this is fair? Use Item C, and what you have learnt from your investigation into this topic, to give reasons for your answer. (14)
Developing economies: India and China – issues of growth and the impact on developed countries
Past exam questions Jun 11 State and explain two economic differences between developed countries such as the UK and developing countries such as India and/or China. (4) Explain two possible effects on developed countries such as the UK of the rapid economic growth of developing countries such as India and/or China. (6) Rapid economic growth in China and India has had many effects on those two countries, and the rest of the world. Which effect do you think is the most damaging in the long term? Use Item C and what you have learnt from your investigation of this topic to give reasons for your answer. (14) Jun 12 Explain two causes of rapid economic growth in China and/or India. (4) Explain two possible negative effects of rapid economic growth on China and/or India. (6) Do you think that the governments of China and/or India show enough concern for ethical issues while their economies are growing so rapidly? Use Item C and what you have learnt from your investigation of this topic to give reasons for your answer. (14)
Dominant firms: impact on consumers and producers plus issues of control and regulation
Past exam questions Jun 12 Explain one benefit to UK consumers of large supermarkets. (2) Explain the effects on producers of large firms dominating the UK supermarket industry. (6) Do you think that the government should do more to control the firms which dominate the UK supermarket industry? Use Item B and what you have learnt from your investigation of this topic to give reasons for your answer. (14) Jun 13 Explain one method of control or regulation that the UK Government could use to deal with market dominance. (2) Explain two ways in which firms in one of the industries in Item B might increase their market dominance. (6) Does market dominance by the main firms in one of the industries that you have studied benefit or harm consumers? Use Item B and what you have learnt from your investigation of this topic to give reasons for your answer. (14)
Poverty: disparities in living standards and the ethical issues that arise from the implications of choice for society
Past exam questions Jun 11 State two possible ways the standard of living in the UK could be measured. (2) Explain why poverty can lead to health problems. (3) Explain the possible effect(s) on the UK economy of a large number of people suffering from poor health. (3) The UK government might consider the following two methods to reduce poverty. • Increasing benefit payments to those who are unemployed or on low incomes • Raising the National Minimum Wage from around £6 per hour to £8 per hour.
Recommend which method you think would be most effective in reducing poverty in the UK. Use Item B and what you have learnt from your investigation of this topic to give reasons for your answer. (14)
Jun 14 Explain what is meant by the term ‘relative poverty’. (2) Explain two possible effects on UK society of high levels of poverty in the country. (6) Recommend which method you think is better at reducing poverty in the UK. Use Item B, and what you have learnt from your investigation into this topic, to give reasons for your answer. (14)
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