Notesale: Turn your study into money

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Economic Objectives of the UK Government
- THE MAIN 5 ARE: Economic Growth, Stable Prices, Low Unemployment, Balance of Payments
and Fairer Distribution of Income
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(Government’s target is 2%)
- Low Unemployment – Everybody looking for a job can get one
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ECONOMIC GROWTH WILL IMPROVE THE LIVING STANDARDS OF THE COUNTRY
- Summary Question! – What are the 5 Economic Objectives for the UK economy and can you
explain them?
- Also, what effects might occur should the targets not be met?

The Structure of the Economy
ECONOMIC STRUCTURE IS A TERM THAT DESCRIBES THE CHANGING BALANCE OF OUTPUT,
TRADE, INCOMES AND UNEMPLOYMENT DRAWN FROM THE DIFFERENT ECONOMIC SECTORS
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(COULD ALSO REFER TO IMPORTS AND EXPORTS)
Different Sectors:
- Primary (Extracting Raw Materials)
- Secondary (Production, Manufacture and Assembly)
- Tertiary (Selling and Redistributing)
The UK economy is dominated by the Tertiary Sector (78%),
with the Secondary Sector being the 2nd largest portion
(21%) and the Primary Sector being almost insignificant (1%)
As the economy develops, improved technology enables Structure of the UK Economy
less labour to be required in the primary sector and allows
1%
more workers to produce manufactured goods
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- I – INVESTMENT (Spending by firms on
investment goods
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Also, may be because a firm may
want to purchase new machinery, equipment or
buildings to increase productive capacity
- G – GOVERNMENT EXPENDITURE (Spending by
the Government on state provided goods and
services such as schools and hospitals) Also
includes spending my government investment
like new roads or new school buildings
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Should the figure in brackets
be a minus, AD would decrease
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- Interest Rates – Should interest rates by high, it is likely that individuals will take advantage
of this and reduce spending and save more instead
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- Consumer Confidence – When consumers feel more confident about the economy and their
financial situation, they spend more and save less, thus increasing AD
- Taxes – Reduces Real Disposable Income, and thus have less money to spend and thus AD
decreases
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FIRMS WILL INVEST IN THESE THINGS IN HOPE THAT THEY WILL BRING FUTURE
PROFITS
- Real Disposable Income – Income after tax, accounting for inflation
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(An increase in the rate of interest reduces investment because: Increases opportunity cost
of investment because they’re spending existing funds when they could save them in a bank
account
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g
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Investment will rise when significant scientific advances are made
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Subsidies may act as an incentive Key Words!
• ‘Subsidies’ – Sum of
- Summary Questions!
money granted by
- Discuss 3 of the 5 Determinants of Investment
the state to keep
- Name all 5 of them
prices low
- Define ‘Corporation Tax’
• ‘Corporation Tax’ – A
- Define ‘Subsides’
tax levied on a
- Define ‘Investment’
Corporation’s profits

AD= C + I + G + (X - M)

Determinants of Government Spending
GOVERNMENT SPENDING IS THE MONEY SPENT ON PUBLIC GOODS AND SERVICES
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IF THERE’S MORE GS
THAN REVENUE, THERE WILL BE A BUDGET DEFICIT, SHOULD THERE BE LESS GS THAN
REVENUE, THERE’S A BUDGET SURPLUS
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- If AD is high and a government may increase taxes and reduce spending to enter a budget
surplus to reduce AD and consequently economic growth
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For example, more
Conservative parties may be more reluctant to spend more in contrast to more Left Wing
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- Emergencies – In some cases, such as the critical terror threat, the government may spend
more on police funding in this case
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Should countries have levels of economic instability and poor months, Net Exports will
decrease
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• The Exchange Rate – WPIDEC AND SPICED!
• Government restrictions on free trade – PROTECTIONISM! (More Protectionism, means
there will be more barriers to trading, thus limiting foreign trade
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A change in either of the
axis will affect the other
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Also, the demand for exports will be
reduced because they are less
internationally competitive
Finally, the demand for imports will
increase as imports will be cheaper
in comparison

Shifts In The AD Curve

AN INCREASE IN AD  (AD1 – AD3)
A DECREASE IN AD  (AD1 –AD2)

The AD Curve may shift to the
right if there’s a rise in
consumption, investment,
government spending or net
exports that hasn’t been caused
by a change in price level
The AD Curve may shift to the
left if there’s a fall in
consumption, investment,
government spending or net
exports that hasn’t been caused
by a change in price level

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