27 - ECONOMIC ISSUES

Gross Domestic Product (GDP)

The total value of output of goods and services in a country in one year

Stages of the business cycle

• Growth - GDP is rising, unemployment is falling, higher living standards. Most businesses do well - optimal position

• Boom - Too much spending, prices rise, shortage of skilled workers. - Businesses will be uncertain, and costs will rise.

• Recession - Caused by too little spending, GDP starts to fall, workers lose jobs. Many businesses experience falling demand and profits

• Slump - Long-drawn-out recession, unemployment reaches high levels, prices fall. Many businesses fail.

Recession

A period of falling GDP

Government economic objectives

• Low inflation

• Low unemployment

• Economic Growth

• Balance of payments between imports and exports

Inflation

Increase in average price levels of products over time

Unemployment

People who are willing and able to find work are unable to find a job

Economic Growth

When a countries GDP increases
more goods and services are produced than in the previous year

Balance of payments

Records the difference between a country’s exports and imports

Real income

Consequence of rapid inflation
The value of income, and it falls when prices rise faster than money income

Exports

balance of payments
Goods and services sold from one country to other countries

Imports

balance of payments
Goods and services bought in by one country from other countries

Exchange rate

balance of payments
The price of one currency in terms of another, for example, 1 euro : $ 1.5 USD

Exchange rate depreciation

balance of payments
The fall in the value of a currency compared to other currencies

Government economic policies

• Fiscal Policy

• Monetary Policy

• Supply side policy

Fiscal Policy

Any change by the government in tax rates or public sector spending

Direct taxes

Paid directly from incomes, for example, income tax or profits tax

Indirect taxes

Added to the prices of goods and taxpayers pay the tax as they purchase the goods, for example, VAT

Disposable income

The level of income a taxpayer has after paying income tax

Import tariff

Tax on imported product

Import quota

Physical limit on the quantity of a product that can be imported

Monetary policy

A change in interest rates by the government or central bank, for example, the European Central Bank

Exchange rate appreciation

The rise in the value of a currency in comparison to other currencies

Supply side policies

Try to increase the competitiveness of industries in an economy against those from other countries. Policies to make the economy more efficient