Managing the UK economy -Edexcel Unit 4

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Harry Bindloss
The government has 4 basic international principles
Reduce Inflation
Reduce unemployment
Achieve economic growth
Balance of Payments at 0
Inflation - Inflation is defined as a sustained increase in the general level of prices for goods
and services.
It has costs to both domestic and foreign customers:
Target at 2%
Currently 3.4%
If there is high inflation then this will be bad for trade for domestic producers and will
therefore reduce international competitiveness
The cost of living will increase ­ can trigger a wage price spiral. It is difficult to get out of a
wage price spiral so it is important to avoid it.
Reduced Unemployment - Unemployment occurs when a person who is actively searching
for employment is unable to find work. Unemployment is often used as a measure of the
health of the economy. The most frequently cited measure of unemployment is the
unemployment rate. This is the number of unemployed persons divided by the number of
people in the labour force.
Everyone who wants/is able to have a job has one
Labour is derived. Its an indicator of your economic success
Labour is a forward multiplier effect. One man's spending is another man's income
UK has the highest rate of unemployment in 70 years currently
Cost of unemployment Increased taxes
You are paying out benefits and losing income revenue
Sustained Economic Growth - A positive change in the level of production
of goods and services by a country over a certain period of time. Nominal growth is defined
as economic growth including inflation, while real growth is nominal growth minus inflation.
Economic growth is usually brought about by technological innovation and
positive external forces.
Continued and Steady
You want both actual and potential growth
It would lead to an increase in the output and increased inflation

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Harry Bindloss
Economic growth will increase living standards
Balance of payments - A set of accounts showing the transactions conducted between
residents of a country and the rest of the world.…read more

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