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)

Thanks for reading Share your thoughts on

Economics teacher @busecon2012 www.busecon.net