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GDP- Gross Domestic Product= Value of our spending/income/output
· Economic growth- Percentage growth in GDP from one year to the next
· Confident consumers- spend rather than save
· Confident businesses- Buy new buildings, machines and computers
· Confident investors- Buy shares in companies
Measuring the economy…read more

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Potential
growth
Boom
Slow
down/
slump
Recession
Recovery
The Business Cycle…read more

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Boom Slump
· Low unemployment · Low investment levels
· Low government spending · Low inflation
· Limited spare capacity · Low retail levels
· Low income per head
· High investment levels
· High unemployment
· High income levels · High government
· High income per head spending
· High retail sale
· Inflation
Characteristics of Booms
and Slump…read more

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Leading indicators- Early warning signs
· Central or coincident indicators- Reflect current situation
· Lagging indicator- Very slow to reflect what is happening
Leading indicator Central indicator Lagging indicator
Share Prices GDP Interest rates
Construction orders Consumption Wages
Orders for capital goods Inflation
Business Confidence Unemployment
Consumer confidence
Indicators…read more

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Inflation is the general rise in prices over time
· Government keeps an eye on inflation by buying a basket of
goods one a year.
· RPI- Retail Price Index, A basket of 700 goods and services
purchased each month by the average household, includes
housing costs, mortgages, interest payment, council tax.
· CPI- Consumer Price Index, A different basket of goods and
services purchases by consumers each month, this measure is
used by the UK government.
· If inflation is too high interest rates will increase.
· If inflation rates are too low interest rates will decrease.
Inflation…read more

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