2.1 Measures of economic performance

Question 1

effects of unemployment on consumers, gov, firms, society + workers

Answer 1

1. CONSUMERS -> reduced income -> less income -> less AD welfare benefits may provide good living standards; consumer behaviour is influenced by other factors
2. GOVERNMENT -> incr welfare spending -> less tax revenue as less people working -> incr budget deficit (lower IR to incentivise investment + create more jobs)
3. FIRMS -> lower sales -> less profits -> cost-cutting -> less output -> waste of economic resources (PPF)
4. SOCIETY -> wage inequality -> more crime and social unrest -> less potential eco. growth (progressive taxation)]
5. WORKERS -> loss of income -> skill erosion -> mental health (high-demand industries may face less unemployment periods; invest in education + training)

Question 2

causes of current account deficit

Answer 2

• poor price/non-price competitiveness -> e.g. due to exhcnage rate fluctuations or quality/availability
• high relative inflation rates compared ot trading partners

Question 3

consequences of a current account deficit

Answer 3

• currency depreciation -> higher demand for foreign currencies -> higher supply of £ -> erodes pruchasing power -> decr SOL -> net exports down
  EVAL: wealer pound = exports cheap so net exports up
• inflationary pressure -> higher import costs -> cost-push inflation EVAL: if imports are price elastic -> less inflationary pressure
• incr unemployment -> reduced demand for domestic goods -> reduced domestic employment

Question 4

how to correct deficit

Answer 4

• currency depreciation (depends on PED, MLC or Jcurve)
• tariffs + quotas to discourage consumption