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Unit 2…read more

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Maintaining full employment Economic Growth
Means everyone who is able and willing to work has a job. Refers to growth of output in the economy.
Workforce includes only those who are working plus the Value of output will be equal to value of
unemployed looking for a job . Government dose not aim for workers and owners of factors of production
100% as some people are in-between , when there is high .
employment and low unemployment increase the welfare of Government is aiming for a richer economy
society government would like a steady rate of
growth .Avoiding cyclical changes in GDP .
Government like to avoid recession
Objectives of
The Government
Balancing Exports and Imports
Government aimed for balance of
Achieving price stability exports and imports over time. Doesn't
Means keeping price stability low. mean value of exports should match
Inflation ­ the rise in general price imports but deficits should be matched
level. Inflation can have serious by surpluses in other years .
disadvantages for the economy .
Government aims for 2% per annum…read more

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fiscal policy
Interest rate policy
Aimed at changing the level of total demand through
Aimed at changing the level of total aggregate
changes in taxation through changes in taxation and
demand in the economy through changes in
governments own spending. If objective is to achieve
interest rates. This policy is operated by the bank
more employment and economic growth ,the
of England. If the objective is to achieve more
government will operate a fiscal policy to raise demand
employment and economic growth , than bank of
but if the objective is to achieve a lower rate of
England will reduce interest rates to increase
inflation and reduce imports/increase exports, it will
demand. If the objective is to achieve a lower rate
operate a fiscal policy to reduce total demand.
of inflation and reduce imports/reduce exports. It
will raise interest rates to reduce total demand.
Government polices
Combining government policies
Government can use a combination of
polices to achieve its objectives . If the
government wants to raise employment and
reduce unemployment it can increase Supply side policy
government spending and lower taxes Aim to increase the economy's capacity to
thorough a fiscal policy . Bank of England produce more goods and services .policy's
can reduce interest rates at the same time. help government to achieve its objectives.
Both policy will increase total demand in the (Education and training to improve the quality
economy also the government could use a of the work force )
supply side policy in education and training
to help people gain employment.…read more

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Environmental costs- Greater output and consumption can lead to more pollution Economic growth -Economic growth is growth of the
of the land, air, sea and fresh water. For example as output increases so does the country's output over time. Out put is usually measured as
transportation of these goods, which means more pollution being created. Quality GDP. This is the same as the total incomes of the people of
of life does not depend on material possessions and consumption. It includes leisure the country in a year . Total value of output becomes
time and quality the environment in which we work and live. incomes for those who produce it.
Inequalities of income and wealth- The benefits of
Economic growth is measured by the value of the
growth are unevenly spread. This means some
GDP-the total value of goods and country's out put and calculates the rate at which it
become better off while others stay the same.
service produced in a country in a year has increased (if in year 1 the GDP was £500 billion,
Loss of non-renewable resources- Economic growth and in year 2 it was £510 billion it was grown by 2%
uses resources that can't be replaced, including oil, . The economic growth rate was 2%)
natural gas, metals and other minerals. As some of GDP per capita ­GDP divided by the
resources are home to animals they may become total population.
endangered and some may face extinction. Causes of economic growth
Congestion- Economic growth is often
concentrated in certain urban areas, cause over
crowding and congestion. more pressure on
Economic Growth Investment -spending on capital goods (premises
and equipment). More investment means the
economy has the capacity to produce more goods
services(hospital) and roads become more
Benefits of economic growth and services in the future.
congested and travelling times increased.
Inflation- Sometimes the economic growth is Changes in technology ­technical progress
too fast to respond without a rise in the general A rise in material living standards- If GDP rises means the quality of capital goods improves and
price level. faster than the population rises, GDP per capita more output can increase.
increases. This means everyone, on average,
Costs of economic growth has more output available to consume than A larger workforce- more works there is the more
before. They are materially better off. that can be produced. There can be a natural
A rise in the welfare of the population- As the increase in population or immigration.
capacity of the economy to produce more grows. A rise in employment and a fall in
government is able to devote more resources to unemployment- As output rises, more Education and training-- effects the quality of the
services such as education /health. can improve workers will be required to produce it, workforce .more educated, trained and skilled the
the general welfare of the country. therefore unemployment falls. workforce the greater the output
A reduction in poverty- As output and incomes
Evaluating causes of economic growth. Natural resources- discovery of a natural
rise , the government is able to take more in
Means trying to judge which of the causes resource can be a stimulus to economic growth.
taxes from the higher-income groups and use
is most important for particular case e.g..
the revenue to raise the living standards of
Natural resources- Kuwait's economy and Government policies ­ effectiveness on
those with lower incomes, for example by
capital investment ­ china's economy. government policies can significant response on
providing benefits.
the economy.…read more

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Unemployment can be measured by the Claimant count- measures unemployment
government using the claimant count and labour according to the number of people claiming
force survey unemployment related benefits.
Labour Force Survey- survey a sample of house
Unemployment- when workers who are able
holds, counting people as unemployed if they
and willing to work are unable to find work
are actively seeking work but do not have a job .
Full employment is where all those able and Types and causes of unemployment
Social problems- As well as lowering living willing to work are in paid employment at
standards, the unemployment may suffer current wage rate.
from a loss of status and self-esteem. It can Voluntary ­ when people choose not to work
lead to an increase in crime
Seasonal ­only being employed certain time
Excluded workers- Some people are each month
unemployed for so long they become excluded
from the workforce. They become Employment and Frictional-workers moving between jobs.
unemployment There are time lags between workers leaving
their job and starting a new one.
Costs to taxpayers- The unemployed
are entitled to Jobseeker's consequences of unemployment Structural- caused by long term changes in
Allowance or other benefits. The structure of industry e.g. they have the work
more unemployed people there are Labour resources are wasted- The economy is it not skills/qualifications for other jobs.
the greater the cost to taxpayers. A using all of its resources that are available, therefore
raise in taxes is likely. wasting them.
technological -caused by capital taking the place
of labour. means that workers lose their jobs. This
Regional problems- has been common in manufacturing industries,
A budget deficit- As well as the Lower living for example use of robots on car assembly lines
Unemployment is unlikely to
rise in spending , the government standards- Workers
spread evenly throughout the
will lose tax revenue from workers and their families
country. In times of high Cyclical--caused by a fall in total demand in the
that become unemployed, for suffer a lower
unemployment some locations economy. If the demand for goods and services
example income tax will have a standard of living as
tend to suffer much more than falls, then fewer workers are needed to produce
much smaller revenue than from unemployment
others, and may become output and some will be laid off. These
before. causes their income
'depressed areas'. unemployed now have lower incomes and will
to fall.
spend less lowering total demand, which will lead
to more unemployed.…read more

Slide 6

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Causes of inflation Inflation- a sustained rise in the general
Wage-price spiral- As the price level over time
Demand-pull inflation- This is caused when the total (aggregate) price level rises workers
demand in the economy rises. The supply of the goods and aim for wage rises. When Price stability ­ the general level of
services cannot compete without the amount demanded, these are given, this prices is kept constant or grows at an
therefore stimulating a rise in price or causes the prices to be results in prices rising acceptably low rate over time
pulled up to reduce to demand. Demand-pull inflation- usually even more and leads to
occurs when the economy is near to full employment. more inflation. This may Rate of inflation- the rate at which the
continue in a cycle were general price level rises over time
Cost-push inflation- This is caused when costs of production inflation can become very
rise and cause the price level to rise. This is because if high
inflation is measured mainly by Consumer
production increases the producer will need to make more Prices Index (CPI). This is the official
money in order to afford the production and sustain the same
level of profit. Inflation measure of the rate of inflation for the UK
government and governments of other
European Union countries.
Hyper inflation. Cost of inflation
Unemployment- High inflation reduces the confidence of businesses and so
they invest less leading to unemployment as total demand falls. Shoe leather costs- If The government finds out the spending
prices are not stable , pattern of average families in the
Balance of payments problems- This will happen when a country which we consumers and firms country. It records the prices of
trade with has a higher inflation rate than our own. Their competitive will spend more time everything the families buy each month.
decrease and prices drop so more consumers and firms will import goods and 'shopping around' to This is done across the country. So if
so will lead to a trade deficit. find a reasonable prices rise from one month to the next it
price. This extra time is recorded in the CPI. Goods and services
Menu costs- Firms have to adjust their price lists more often when there is and effort is known as that usually take a higher proportion of
inflation, for example restaurants increasing the prices on their menus 'shoe leather costs'. the spending are more important when
measuring inflation.
Income redistribution problems- Some people (especially debtors) may gain from inflation. Workers with
a strong trade union may be able to achieve wage rises that keep up with inflation. But many people on
low, fixed incomes may face hardship as their income fails to keep up with the prices.
Labour market problems- Workers will want wage rises to keep up with inflation ,cause the employer to struggle
with the increase in labour costs, can lead to conflict between employers and employees and this can cause strikes.
benefits of price stability/a low rate of inflation- a low rate of inflation may act as an incentive for businesses to
invest as they will be able to increase prices and profits. Price stability makes it easier for relevant prices to adjust…read more

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