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Ireland is a small open economy which relies on investment to achieve economic growth - Leaving Cert Economics - Question 7 - 2006
Question 7
Ireland is a small open economy which relies on investment to achieve economic growth. Explain each of the underlined terms. Given: National Income as Y = C + I + G... show full transcript
Worked Solution & Example Answer:Ireland is a small open economy which relies on investment to achieve economic growth - Leaving Cert Economics - Question 7 - 2006
Step 1
Explain the term "open economy".
Answer
An open economy refers to a national economy that engages in international trade, both imports and exports. By participating in trade with other countries, an open economy can benefit from comparative advantages, access to broader markets, and a diverse range of goods and services. It encourages investment flows and promotes competition.
Step 2
Explain the term "economic growth".
Answer
Economic growth refers to an increase in the production of goods and services in an economy over time, usually measured as the percentage increase in real Gross Domestic Product (GDP) or Gross National Product (GNP). It signifies higher income levels, improved living standards, and the overall health of the economy.
Step 3
Step 4
State and explain TWO possible advantages to the country of economic growth.
Answer
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Increased Employment: Economic growth typically leads to job creation as businesses expand and new firms enter the market. This results in a lower unemployment rate and improved living standards as more people have access to steady incomes.
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Higher Standard of Living: As the economy grows, the income levels of individuals tend to rise. This leads to enhanced purchasing power, allowing consumers to afford better goods and services, thereby improving the overall quality of life.
Step 5
State and explain TWO possible disadvantages to the country of economic growth.
Answer
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Environmental Degradation: Rapid economic growth can strain natural resources and lead to environmental issues such as pollution, deforestation, and loss of biodiversity. The pressure for constant growth can encourage unsustainable practices that endanger the ecosystem.
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Income Inequality: While economic growth may increase overall wealth, it can also widen the gap between different social classes. Those who are already privileged may accumulate wealth at a faster rate than others, leading to social tension and economic disparities.
Step 6
State and explain TWO economic reasons why foreign firms choose to locate in Ireland.
Answer
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Low Corporate Tax Rates: Ireland offers one of the lowest corporate tax rates in the EU, making it an attractive destination for foreign firms seeking to maximize their profits and minimize tax liabilities.
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Access to EU Markets: Being a part of the EU enables firms located in Ireland to easily access and trade within the larger European market without tariffs, providing significant business opportunities.
Step 7
State and explain ONE way these foreign firms affect the level of employment in Ireland.
Answer
Foreign firms are likely to create jobs locally as they establish branches or subsidiaries in Ireland. By hiring from the local workforce, they not only increase employment rates but also enhance the skills of workers, thereby boosting the overall economy.
Step 8
State and explain ONE way these foreign firms affect the revenue collected from taxation in Ireland.
Answer
The establishment of foreign firms in Ireland increases tax revenue through corporate taxes on profits. As these firms often operate with higher profit margins, they contribute significantly to national revenue, which can then be used for public services and infrastructure development.