1. The Government & The Economy

2. Learning Objectives
To understand the Economic Objectives of Governments

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

4. 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 =

5. 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 =

6. 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

7. 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 =

8. ECONOMIC GROWTH & TRADE CYCLE DIAGRAM

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

10. 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

11. 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

12. 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

13. 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

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

15. SCENARIO 2
UNEMPLOYMENT IN THE COUNTRY IS AT A RECORD LOW

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

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

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

19. 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

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

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

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

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