Environments - Economic Impacts

Inflation

General rise in prices overtime.

Inflation Measurement

ABS calculates the CPI based on a list of the typical goods and services purchased by a household and comparing this to previous months.

High Inflation Effects

• consumers will spend more time searching for lower prices

• businesses and consumers may change their behaviour using online shopping to compare prices

• businesses find it hard as their costs are rising but they’re still encouraging consumers to buy through low prices and profits may decrease

Interest Rates

The amount a lender can charge for the use of assets expressed as a percentage of the principal.

Interest Rates Measurement

Based on a percentage of the principal of the borrowed amount.

Low Interest Rates Effect

• result in increased spending as people are spending less on debt repayments and have more spare money

• businesses and people can increase their debt repayments meaning the debt is easier to pay off

Availability of Skilled and Unskilled Labour

The number of workers willing and able to work in a particular job or industry for a given wage.

Labour Supply Measurement

Number of hours people are willing to supply at a given rate, upward sloping curve.

Shortage of Labour Supply Effects

• less specialised skills

• demand is high, supply is low

• businesses use higher wages to attract and keep employees which increases cost of production

Unemployment

A person who is over the age of 15 that doesn’t work one hour or more each week, is actively seeking work and is currently available for work.

Unemployment Measurement

ABS conduct a survey each month called the Labour Force Survey asking around 50,000 participants, grouped into three categories - employed, unemployed, not in labour force.

Rising Unemployment Effects

• lower spending and focused on essentials

• lower demand

• over supply of labour result in lower wages

• specialised skills and experience lose

• staff morals lower

Falling Unemployment Effects

• spending increased and broadened

• higher demand

• shortages in labour put upward pressure on wages

• higher wages increase cost of production causing higher inflation

• workers are more motivated