Economic Indicators
How can we tell if an economy is performing well?
Inflation rates
Unemployment rate
Economic growth
Interest rates
Unemployment
Types/Causes
Structural unemployment
Seasonal unemployment
Technological unemployment
Cyclical unemployment
Frictional unemployment
Voluntary unemployment
Dangers
Increased social issues
Reduced economic growth
Government income will fall and expenditure will rise
Effects
Economy
Higher levels of demand for goods and services
Sales rise and businesses may expand
More PAYE, Corporation and other taxes
Government finances under pressure
More spent on unemployment benefits
Less PAYE collected
Less expenditure on unemployment benefits
Sales decline and businesses struggle
Individuals
Fewer full time jobs
Wages tend to fall
Harder to find employment
Taxes may rise
Some people lose their jobs
Easier for people to find jobs
Inflation - when there is an increase in the general level of prices from one year to the next.
Causes
Demand pull : this occurs when the amount of overall demand in the economy grows faster than the amount of goods produced. When this happens, prices will increase.
Cost Push : This is when the cost of producing goods increases. When this happens, producers have to increase their prices in order to cover their costs and maintain their profits.
Dangers
Damages economic growth
Fall in foreign direct investment
Fall in demand for exports
Interest rates - represent the cost of borrowing money
Effects
Individuals
Loans are more expensive to repay, discouraging borrowing
For those repaying loans, their disposable income falls
People with savings in banks can earn higher rates of interest
Loans become cheaper and more people are tempted to borrow money
People with savings in banks earn lower rates of interest
Economy
Less borrowing decreases spending and economic activity, which can cause higher unemployment
Reduced economic activity reduces the amount of tax for government
Increased borrowing boosts spending. Businesses may borrow and expand. Employment grows.
Increased economic activity increases the amount of tax for government.
Economic Growth
Gross Domestic Product (GDP) refers to the value of all the goods and services produced in an economy in one year
Economic growth measures the percentage change in GDP from one year to the next.
An economic boom occurs when the level of economic activity increases very quickly.
A recession occurs when economic growth ceases or becomes negative (i.e. the economy starts shrinking).
A depression is a severe and prolonged period of economic decline.
Fluctuations in economic activity over time are referred to as the ‘business cycle’.
Benefits
Lowers unemployment
Increases living standards
Increases money for government services
Achieving economic growth
Enterprise influences
Increased exports
Decreased imports
Discovery of valuable natural resources
New inventions and technical progress
Government influences
Low government taxes
Increased government spending
Government investment in capital