10 Humanities- Economics

Economics

The Business Cycle

The Business Cycle refers to the changes in economic activity that occurs over time, indicating periods of expansion and contraction in an economy. It is measured using real GDP, and includes the 4 phases- expansion, peak, contraction, and trough.

The Four Phases

Expansion- economy is growing, GDP growth is increasing, Employment is high, Inflation rising

Peak- highest point before a slowdown. GDP growth is slowing, Employment is very high, Inflation is high

Contraction (recession)- Economy is shrinking. GDP growth is negative, employment is falling, inflation is decreasing

Trough- Lowest point before recovery. GDP is at lowest point, Employment is low, Inflation is low/stable

Economic Indicators

Economic Growth (GDP growth)

Unemployment rate

Inflation rate

GDP

The total value of all goods and services produced within an economy in a given period

Why economic growth matters

Creates jobs and reduces unemployment

Improves living standards

Increases availability of goods and services

Sustainable growth

Growth that does not harm future generations

considered sustainable at about 2-4% per year

Limitations of GDP

Does not include volunteer work, unpaid work

Does not reflect environmental damage

Includes negative activities (e.g pollution)

GDP Per Capita

GDP divided by population- shows average output per person. A better measure of living standards than total GDP alone

High GDP does not always mean high wellbeing for individuals

Unemployment

Labour Force- all people who are currently employed OR actively seeking work

Unemployment- People who are not working but are actively looking for work

Unemployment Rate Formula: Unemployment rate = (unemployed divided by labour force) x 100

Types of unemployment

Frictional- Temporarily between jobs

Structural-Skills no longer match available jobs

Cyclical- Caused by economic downturns

Inflation

A general rise in the price level of goods and services across the economy over time

Causes of inflation

Demand-pull- too much demand in the economy drives prices up

Cost-pull- rising production costs (e.g wages) are passed on to consumers

How businesses respond to Economic Conditions durning a downturn

cut costs

reduce staff

focus on efficiency

How businesses respond to Economic Conditions durning a expansion

invest more

hire more staff

increase production

develop new products

Why businesses invest in R&D

to improve productivity and reduce costs

to stay ahead of competitive

to develop new or improved products

Research and Development (R&D)

investment in new ideas, technology, processes, and improvements to generate competitive advantage

How R&D creates competitive advantage

leads to better products that attract customers

reduces production costs through improved methods

drives ongoing innovation and differentiation

Product innovation

creating new or improved products

apple releasing new iphone features

process inovation

improving how products are made or delivered

introducing automated software systems

marketing

the entire customer experience, not just advertising. includes how a business communicates, and delivers value to customers

output

the quantity of goods or services a business produces

why businesses adjust output

to match the level of demand in the economy

to avoid waste and unnecessary costs

staffing and economic conditions

strong economy- increase staff to meet higher demand

weak economy- reduce staff to cut costs