Ch 30- Economic Indicators

Question 1

What are economic indicators

Answer 1

provide useful insights into the direction an economy is going, or is likely to go in the future.​

Question 2

What are the 6 economic indicators?

Answer 2

Inflation​

Employment levels ​

Interest rates ​

National debt​

National income ​

Economic growth​

Question 3

What is inflation?

Answer 3

Increase in the general level of prices of goods and services from one year to the next.

Question 4

How is inflation calculated? xx

Answer 4

By the consumer price index (CPI)

Question 5

what is the formula for calculating inflation? xx

Answer 5

Cost of living year 2 - Cost of living year 1
———————————————————— x 100
Cost of living in year 11

Question 6

What are the causes of inflation? xx

Answer 6

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

Question 7

Impact of high inflation on households?

Answer 7

-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​)

​

Question 8

Impact of high inflation on a business?

Answer 8

• 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

Question 9

Impact of high inflation on the economy?

Answer 9

-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)

Question 10

What is the labour force?

Answer 10

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

Question 11

How to calculate unemployment? xx

Answer 11

number of unemployed
———————————– x 100
total of labour force

Question 12

what is full employment?
What is Ireland’s unemployment rate?

Answer 12

Where almost all members of labour force are employed
- An unemployment rate of 4% in Ireland is considered full employment.

Question 13

Effect of high unemployment on households?

Answer 13

-Decrease in consumer demand - families have less income levels as jobs are lost.
-Emigration to find employment

Question 14

Effect of High Unemployment on Businesses?

Answer 14

-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.

Question 15

Effect of high unemployment on economy?

Answer 15

-Reduced economic activity due to less disposable income
-Social problems may increase and shadow economy grows

Question 16

What are interest rates?

Answer 16

Cost of borrowing money or the reward for money saved.
-> low rates encourage more borrowing and reduce cost of existing borrowings.

Question 17

Effect of low interest rates on households?

Answer 17

-Access to cheaper finance/ loans -> more borrowing and spending
- Increased borrowing = increased level of household debt.

Question 18

Effect of low-interest rates on businesses?

Answer 18

-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.

Question 19

Effect of low interest rates for the economy?

Answer 19

-Increased borrowing and spending -> increase in (VAT) revenue for govt.
-Increased investment in businesses reduces unemployment and the level of social welfare payments.

Question 20

What is national debt?

Answer 20

Total amount of money a country’s govt. has borrowed.
- state body that manages is National Treasury Management Agency.

Question 21

What is debt servicing?

Answer 21

The term is used to describe the payment of interest on our national debt.

Question 22

Impact of national debt on households?

Answer 22

-Taxes may increase to help fund repayment on govt loans. less money for households.
-Govt. spending reduced -> impacts level of public services provided (buses)

Question 23

Impact of national debt on Businesses?

Answer 23

-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

Question 24

Impact of national debt on the economy?

Answer 24

-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.

Question 25

What is national income?

Answer 25

The total value of all new goods and services produced in a country in a year.
Expressed in GDP or GNP

Question 26

What is GDP?

Answer 26

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.

Question 27

What is GNP?

Answer 27

Gross National Product
-total value of goods and services produced by a country ( in that country or overseas) in one year.

Question 28

What is economic growth?

Answer 28

When there is an increased amount of goods and services produced in an economy from one year to the next.

Question 29

How to calculate economic growth? xx

Answer 29

Year 2 - Year 1
—————————- x 100
Production in yr 1

Question 30

What is the economic cycle? xx

Answer 30

The way economic activity changes over time.

Question 31

What is an economic boom? xx

Answer 31

Describes a continous period of rapid economic growth.

Question 32

What is a recession? xx

Answer 32

A general slowdown in level of economic activity.

Question 33

What is economic depression? xx

Answer 33

Severe recession

Question 34

Effect of economic growth on households?

Answer 34

-Increased employment and improved standard of living.
-Obesity due to increased amounts of convenience food

Question 35

Effect of economic growth on businesses?

Answer 35

-Multiplier effect
-Rise in govt. income - more taxation may cause a budget surplus to lower tax rates.

Question 36

What is the multiplier effect?

Answer 36

-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

Question 37

What is cost-plus inflation? xx

Answer 37

When the cost of producing goods increases, the cost price increases.
(e.g. because the cost of wages or raw materials rises).

Question 38

What is imported inflation? xx

Answer 38

If cost of imported raw materials increases - price of finished goods will also increase

Question 39

Effect of economic growth on the economy?

Answer 39

-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