GCSE Economics - Managing the Economy

My revision notes on managing the economy. They are very detailed, 8 pages, covers everything except for aggregate supply and demand.

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  • Created on: 08-04-12 12:39
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Economics Revision Notes Unit 12
Economic Objectives
Macroeconomic objectives of the UK:
Economic growth
Full employment
Price stability/low inflation
Balance of payments equilibrium
How do Ethical issues affect the achievement of government objectives?
The UK government believes that it is ethically right to aim to minimise poverty. The government also aims
to minimise income inequality where incomes are too spread out and gap between rich and poor is too
The main strategy to minimise poverty and reduce the rich/poor divide is to introduce taxes and the welfare
benefit system. Where those with high incomes pay a higher proportion of their income as tax, which can
help finance the benefit payments to those on lower incomes. This is done because the government
believes that equality is a fairer outcome though the government does not want income to be distributed
completely equally.
Economic Growth
Economic growth: The percentage change in national income measured over time.
Benefits and Costs of Economic growth:
Benefits Costs
Higher living standards: higher growth means higher Environmental Costs: higher growth means higher
income for the population. It may not affect each output. This may have negative effects. For example,
person in the same way but growth means that higher factory output often generates higher
people can buy more and have a higher standard of pollution. Other problems of high growth also
living. emerge, such as worsening traffic congestion and
unaffordable house prices.
Reduction of poverty: economic growth helps to
move poorer sections of the population out of Inequality: Although growth is beneficial, all won't
poverty by providing opportunities for better living benefit equally. It is most likely that those benefiting
standards. greatest are already earning above average incomes.
Those with below average incomes often find
Investment in infrastructure: Higher growth means incomes largely unchanged. This income inequality
that governments collect more taxes revenue and may lead to a significant part of the population
therefore can afford to spend more on priority areas falling into relative poverty, where incomes are low
such as: relative to the rest of the county.
Improving education provisions
Providing improved health provisions The government attempts to reduce the gap
Improving transport links between rich and poor through the welfare state.
Lower crime: There appears to be a link between
economic growth and levels of crime. As growth
rises, some crimes fall as the incentive to commit
crime is reduced.
Undermining other economic objectives:
Low inflation: high growth is likely to lead to higher inflation because growth and spending are closely linked.
Higher spending often leads to rising prices throughout the economy. This is because higher growth means

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Economics Revision Notes Unit 12
resources in the economy are more fully used and become scarcer, which leads to the prices of resources
Balance of payments: higher growth leads to higher consumer expenditure and this means more imports are
purchased. This leads to current account section moving close to, or into, a trade deficit. The only way in
which this can be avoided is if the economic growth itself arises out of an increase in demand for our
exports.…read more

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Economics Revision Notes Unit 12
gains from the external benefit of the new business in terms of the employment opportunities and the extra
income generated.
What can governments do about Externalities?
These examples illustrate how governments might intervene:
Car drivers don't pay the negative externalities caused by exhaust fumes. Taxes placed on
petrol attempt to reduce this external cost as the higher price for petrol should mean that fewer
car journeys take place.
Society benefits from a well-educated population because those educated usually earn more.…read more

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Economics Revision Notes Unit 12
Fiscal policy refers to the choices and decisions made for government spending and the taxation that will go
towards financing for expenditure.
How can fiscal policy be used to achieve each government objective?
Inflation ­ increases in government spending can lead to high inflation. If spending in the economy is already
rising, any extra government spending might contribute to higher inflation.…read more

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Economics Revision Notes Unit 12
was left to solely to private firms to provide, those on lower incomes might not receive the full
benefits of the health care and may not, as a result, enjoy the same level of health.
The health of the population is linked with income. Therefore, the welfare state improves the health
of the poorer segments of the population in particular, as they receive money transfers.…read more

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Economics Revision Notes Unit 12
Free trade; one of the main attractions of being an EU member is that it allows free trade between
EU countries. This means that buying and selling goods between countries should be as easy as
buying and selling within one country. If free trade exists, there can be no tariffs on goods or
services. Tariffs are a tax placed on imports designed to discourage people from buying imports and
to encourage people to buy their home produced goods instead.…read more

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Economics Revision Notes Unit 12
become more efficient through economies Common Agricultural Policy ­ The UK
of scale. contributes money for the EU's CAP. This is
a system whereby agricultural prices are
Higher incomes ­ free trade should benefit guaranteed and this means that farmers can
all members of the free trade area. This is expect a guaranteed income for their
because countries can specialise in the output. This benefits countries where the
production of goods they are more skilled agricultural industry is inefficient.…read more

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Economics Revision Notes Unit 12
different countries as easily as when foreign countries as they appear cheaper.
separate currencies existed. This is not possible in a single currency.
Greater economies of scale ­ being in the
Eurozone have encouraged greater trade
with other countries in the Eurozone. This
has allowed firms to expand. These firms
will benefits from increased efficiency ­
known as economies of scale.…read more

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Economics Revision Notes Unit 12…read more


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