The Government & The Economy

Learning Objectives To understand the Economic Objectives of Governments

Government Economic Objectives Low INFLATION Low levels of UNEMPLOYMENT Economic Growth BALANCE OF PAYMENTS – avoiding deficits between exports & imports

INFLATION Inflation occurs when PRICES RISE If prices rise rapidly then: Wages will not buy as many goods  REAL INCOME falls Higher prices than other countries  less competitive and people will buy from abroad  Job losses Businesses may shrink and living standards fall THERFORE GOVERNMENT AIM =

UNEMPLOYMENT Occurs when people are not working If unemployment is HIGH then: Level of output will be low  people not producing goods Government pays unemployment BENEFIT to help  costs government money  public services may suffer THEREFORE GOVERNMENT AIM =

ECONOMIC GROWTH An economy grows when level of output in a country increases. GROSS DOMESTIC PRODUCT (GDP) measures the value of goods and services produced in country in one year. Growth = GDP & standard of living

THEREFORE GOVERNMENT AIM = IF GDP FALLS……. There is no economic growth causing: Less output of products  less workers needed  unemployment increases People can not afford to buy as many goods or services  poor standard of living Businesses shrink (more unemployment) as people don’t buy products. THEREFORE GOVERNMENT AIM =

ECONOMIC GROWTH & TRADE CYCLE DIAGRAM

GROWTH GDP is rising Unemployment is falling Living standards are high. Businesses are doing well. The economy of the country is good

BOOM Caused by too much spending Prices rise quickly Shortage of skilled workers Business costs rising Businesses are uncertain about the future  will not expand or employ more workers

RECESSION When GDP actually falls (goes down) Often caused by a lack of spending People don’t buy products Businesses have falling demand and profits Businesses reduce costs  make workers unemployed

SLUMP Serious and drawn out recession Unemployment reaches high levels 10%+ Businesses will lose sales Prices may fall to try to sell products Many businesses will not survive

Write down the terms which are MOST appropriate for the scenario UNEMPLOYMENT – LOW OR HIGH INFLATION – LOW OR HIGH GROSS DOMESTIC PRODUCT - or LIVING STANDARDS – GOOD OR BAD

SCENARIO 1 THE PRICES OF BREAD, MILK, CLOTHES AND OTHER NECESSARY ITEMS HAS INCREASED

SCENARIO 2 UNEMPLOYMENT IN THE COUNTRY IS AT A RECORD LOW

OUTPUT OF GOODS AND SERVICES FALLS IN THE COUNTRY SCENARIO 3 OUTPUT OF GOODS AND SERVICES FALLS IN THE COUNTRY

ECONOMIC GROWTH INCREASES IN THE COUNTRY SCENARIO 4 ECONOMIC GROWTH INCREASES IN THE COUNTRY

State the term MOST appropriate for the scenario GROWTH BOOM RECESSION SLUMP THEN….. WRITE ON SHEETS WHAT OTHER EFFECTS THIS MAY CAUSE.

PRICES OF GOODS HAVE GONE UP AND PEOPLE ARE NOT SPENDING MONEY SCENARIO 1 PRICES OF GOODS HAVE GONE UP AND PEOPLE ARE NOT SPENDING MONEY

THE NUMBER OF GOODS BEING PRODUCED AND SOLD IS GOING UP SCENARIO 2 THE NUMBER OF GOODS BEING PRODUCED AND SOLD IS GOING UP

BUSINESSES ARE LOSING MONEY AND ARE NOT SURVIVING SCENARIO 3 BUSINESSES ARE LOSING MONEY AND ARE NOT SURVIVING

PEOPLE ARE SPENDING TOO MUCH CAUSING PRICES TO RISE QUICKLY SCENARIO 4 PEOPLE ARE SPENDING TOO MUCH CAUSING PRICES TO RISE QUICKLY

PLENARY From this lesson I have learnt that the desired economic objectives of the government are: