Public expenditure

Capital expenditure - government spending on capital (things that make things) and infrastructure such as roads, schools, prisons, etc.

Current expenditure - spending on recurred state-provided goods and services. For example wages for those working in the NHS and funding for state schools.

Transfer payments - welfare payments such as JSA, state pensions and benefits put in place to ensure a basic level of welfare for all.

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Business Growth

Why do businesses grow? Profit motive Businesses grow to make more profit by increasing revenue. Selling more to more people often means profits increase. The valuation of a company's share is often influenced by how it is expected to do in the future (ie how much profit it is likely to make). When it is projected to do well, share prices increase, and it is valued more highly on the stock market. This provides incentive for companies to increase profits, doing well on the stock market increases investment and raises more money. Cost motive - economies of scale When firms are larger, relative costs are smaller. This is because some costs are fixed, so if you are a larger company, producing larger output, the cost per unit will decrease. e.g. If a T-shirt factory's main cost is the £10,000 to rent to factory each month, and it produces only 1000 shirts a month, each shirt costs £10 to make. But if it scales up and produces 100,000 shirts a month, ...

The Philips curve

The Philips curve The Philips curve suggests a tradeoff between unemployment and inflation - to decrease unemployment, inflation has to rise. This creates a conflict between two macroeconomic objectives - targeting inflation at 2% (in the UK) and decreasing unemployment.

Income elasticity of demand (YED)

Income elasticity of demand (YED) % D QD/% D Y Income elasticity of demand (YED): the responsiveness of the quantity demanded of a good to changes in consumer income. YED allows us to work out which goods are inferior, luxury and normal. When YED > 1 or <-1, demand is elastic. When YED is between -1 and 1, demand is inelastic. When YED < 0, goods/services are inferior. This means as income rises, demand for these goods decreases. (e.g. bus tickets) They vary inversely with income. When YED < -1, goods are very inferior (e.g. own-brand labels, cheap cuts of meat). When YED = 0, demand for the good is independent of income. When YED > 0, goods/services are normal. Demand for these goods vary directly with income, and the state of the economy. When YED is between 0 and 1, goods/services are necessary. When income increases, demand for these goods go up a proportional...

Edexcel AS/A Level Economics revision

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