Economic Indicators

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Inflation

The increase of prices over time. It is measured on an annual basis by the consumer price index (CPI).

Inflation formula

(Difference in cost of living between year 1 and year 2 ÷ Cost of living in year 1) x 100

Causes of inflation

-When the cost of production (wages, materials, energy) rises, this cost increase is passed onto the consumer. Referred to as cost push => Pushing up prices.
-If the demand for goods and services is greater than the supply, the price will rise.
-A tax increase, ie. VAT, excise duties, will increase the price of a product. A .5% increase in excise duty will automatically increase the price of fuel.

The effects of inflation on individuals

-Higher prices means that consumers will not be able to buy as many goods or services.
-Inflation may stop people saving money.

The effects of inflation on businesses

-Workers may demand wage increases. This will increase businesses costs and will result in lower profits.
-Rising business costs will discourage expansion.

The effects of inflation on the economy

-Irish made goods and services will be more expensive. This may result in job losses.
-Higher cost of Irish goods will result in more inflation.

The labour force

All the people of working age (16-65) who are willing and able to work.

Employed

Members of the labour force who are able to find work.

Unemployed

Members of the labour force who are unable to find work.

Formula for the rate of unemployment

(Labour force/Unemployed ÷ Total population/Employed) x 100

Formula for the rate of employment

(Total population/Employed ÷ Labour force/Unemployed) x 100

The effect of high unemployment on households

-Decrease in consumer demand.
-Many households will have a lower standard of living

The effect of high unemployment on businesses

-It may be harder to attract extra finance
-Reduction in sales and profits

The effect of high unemployment on the economy

-Reduced economic activity.
-The black economy may grow

The effect of low unemployment on households

-Increased consumer demand for goods and services
-Households will have a higher standard of living
-Workers who left Ireland to find employment may return

The effect of low unemployment on businesses

-Employers may need to pay higher wages in order to recruit and keep skilled staff.
-There may be an increase in sales and profits
-May be easier to attract extra finance

The effect of low unemployment on the economy

-Increase in economic activity due to an increase in disposable income
-Some sectors of the economy may suffer from staff shortages

Interest rates

The reward on money saved and the cost of borrowing.

The effect of high interest rates on individuals

-Borrowing is more expensive=> less borrowing
-People are more likely to save

The effect of high interest rates on businesses

-Expansion will be difficult due to the borrowing cost
-Higher repayments of existing loans increase business costs

The effect of high interest rates on the economy

-Lower levels of investment will increase unemployment
-Less borrowing means less spending meaning a reduction in revenue for the government (VAT)