Ch 30- Economic Indicators Flashcards
What are economic indicators
provide useful insights into the direction an economy is going, or is likely to go in the future.
What are the 6 economic indicators?
Inflation
Employment levels
Interest rates
National debt
National income
Economic growth
What is inflation?
Increase in the general level of prices of goods and services from one year to the next.
How is inflation calculated? xx
By the consumer price index (CPI)
what is the formula for calculating inflation? xx
Cost of living year 2 - Cost of living year 1
———————————————————— x 100
Cost of living in year 11
What are the causes of inflation? xx
Cost-push inflation
Imported Inflation
Increase in indirect taxes, e.g. VAT or Excise Duties
Demand-pull inflation: If demand is greater than supply- prices will increase
Impact of high inflation on households?
-Cannot buy as many goods
-Discourages people from saving money if the rate of interest is less than the rate of inflation.
(interest received will not match the price increase of goods and services)
Impact of high inflation on a business?
- Workers may demand wage increases so they can afford goods and services. Increased business costs = lower profits or higher prices
-Rising business costs discourage expansion and investments
Impact of high inflation on the economy?
-Irish goods/services become more expensive and harder to sell abroad -> Job losses and rising unemployment
-Higher cost of Irish goods results in cheaper imports, (negatively impacting our balance of payments/ job losses.) Irish businesses suffer eg.Butlers
-Govt. spending increases (Rising costs and increased social protection payments)
What is the labour force?
People of working age (16-65) who are willing and able to work.
-no retired/full-time students/ those with illness or disability that prevents
How to calculate unemployment? xx
number of unemployed
———————————– x 100
total of labour force
what is full employment?
What is Ireland’s unemployment rate?
Where almost all members of labour force are employed
- An unemployment rate of 4% in Ireland is considered full employment.
Effect of high unemployment on households?
-Decrease in consumer demand - families have less income levels as jobs are lost.
-Emigration to find employment
Effect of High Unemployment on Businesses?
-Harder to attract extra finance- investors less willing to invest at time of failing demand (e.g. recession)
-Reductiion in sales and profit- consumers have less disposable income.
Effect of high unemployment on economy?
-Reduced economic activity due to less disposable income
-Social problems may increase and shadow economy grows
What are interest rates?
Cost of borrowing money or the reward for money saved.
-> low rates encourage more borrowing and reduce cost of existing borrowings.
Effect of low interest rates on households?
-Access to cheaper finance/ loans -> more borrowing and spending
- Increased borrowing = increased level of household debt.
Effect of low-interest rates on businesses?
-Expansion and new product development become easier due to cheap loans -> Increased profitability and employment.
-Lower business costs as repayments on existing loans fall. Businesses may become more competitive and sales/exports/profits should increase.
Effect of low interest rates for the economy?
-Increased borrowing and spending -> increase in (VAT) revenue for govt.
-Increased investment in businesses reduces unemployment and the level of social welfare payments.
What is national debt?
Total amount of money a country’s govt. has borrowed.
- state body that manages is National Treasury Management Agency.
What is debt servicing?
The term is used to describe the payment of interest on our national debt.
Impact of national debt on households?
-Taxes may increase to help fund repayment on govt loans. less money for households.
-Govt. spending reduced -> impacts level of public services provided (buses)
Impact of national debt on Businesses?
-Taxes may increase for businesses to fund govt loans. Business costs rise.
-Consumers with less disposable income will buy fewer goods and services ->reduce sales and profits
Impact of national debt on the economy?
-Borrowing money to pay for essential public services (teachers, gardaí, nurses) not sustainable. -> Likely to be cut eg HSC
-Money spent on debt servicing is not available for other needs eg infrastructure and public services -> significant opportunity cost.
What is national income?
The total value of all new goods and services produced in a country in a year.
Expressed in GDP or GNP
What is GDP?
Gross Domestic Product
-measures the total value of goods and services produced in a country in one year. Includes indigenous (native) and foreign-owned businesses.
What is GNP?
Gross National Product
-total value of goods and services produced by a country ( in that country or overseas) in one year.
What is economic growth?
When there is an increased amount of goods and services produced in an economy from one year to the next.
How to calculate economic growth? xx
Year 2 - Year 1
—————————- x 100
Production in yr 1
What is the economic cycle? xx
The way economic activity changes over time.
What is an economic boom? xx
Describes a continous period of rapid economic growth.
What is a recession? xx
A general slowdown in level of economic activity.
What is economic depression? xx
Severe recession
Effect of economic growth on households?
-Increased employment and improved standard of living.
-Obesity due to increased amounts of convenience food
Effect of economic growth on businesses?
-Multiplier effect
-Rise in govt. income - more taxation may cause a budget surplus to lower tax rates.
What is the multiplier effect?
-An increase in employment leads to more income
This leads to higher demand in goods (as they have more money)
-This leads to an increase in sales and profit for the business
What is cost-plus inflation? xx
When the cost of producing goods increases, the cost price increases.
(e.g. because the cost of wages or raw materials rises).
What is imported inflation? xx
If cost of imported raw materials increases - price of finished goods will also increase
Effect of economic growth on the economy?
-Increase in pollution- more goods means more transport for exporting (cargo/planes)
-Traffic congestion- more goods means more transport to deliver goods (large lorries)
-Destruction of natural land to build factories
-Inflation
-Increase in government income
