The Government&

The Economy

Learning Objectives

• To understand the Economic Objectives of Governments

Government Economic Objectives

• Low INFLATION

• Low levels of UNEMPLOYMENT

• Economic Growth

• BALANCE OF PAYMENTS – avoiding deficits between exports & imports

INFLATION• Inflation occurs when PRICES RISE• If prices rise rapidly then:Wages will not buy as many goods

REAL INCOME fallsHigher prices than other countries less

competitive and people will buy from abroad Job losses

Businesses may shrink and living standards fall

THERFORE GOVERNMENT AIM =

UNEMPLOYMENT

• Occurs when people are not working

• If unemployment is HIGH then:Level of output will be low people not

producing goodsGovernment pays unemployment

BENEFIT to help costs government money public services may suffer

THEREFORE GOVERNMENT AIM =

ECONOMIC GROWTH

• An economy grows when level of output in a country increases.

• GROSS DOMESTIC PRODUCT (GDP) measures the value of goods and services produced in country in one year.

• Growth = GDP & standard of living

IF GDP FALLS…….• There is no economic growth causing:Less output of products less workers

needed unemployment increasesPeople can not afford to buy as many

goods or services poor standard of living

Businesses shrink (more unemployment) as people don’t buy products.

THEREFORE GOVERNMENT AIM =

ECONOMIC GROWTH & TRADE CYCLE DIAGRAM

GROWTH

• GDP is rising

• Unemployment is falling

• Living standards are high.

• Businesses are doing well.

• The economy of the country is good

BOOM

• Caused by too much spending

• Prices rise quickly

• Shortage of skilled workers

• Business costs rising

• Businesses are uncertain about the future will not expand or employ more workers

RECESSION

• When GDP actually falls (goes down)

• Often caused by a lack of spending

• People don’t buy products

• Businesses have falling demand and profits

• Businesses reduce costs make workers unemployed

SLUMP

• Serious and drawn out recession

• Unemployment reaches high levels 10%+

• Businesses will lose sales

• Prices may fall to try to sell products

• Many businesses will not survive

Write down the terms which are MOST appropriate for the scenario

TERMSUNEMPLOYMENT – LOW OR HIGHINFLATION – LOW OR HIGHGROSS DOMESTIC PRODUCT - orLIVING STANDARDS – GOOD OR BAD

SCENARIO 1• THE PRICES OF BREAD, MILK, CLOTHES AND

OTHER NECESSARY ITEMS HAS INCREASED

SCENARIO 2• UNEMPLOYMENT IN THE COUNTRY IS AT A RECORD LOW

SCENARIO 3OUTPUT OF GOODS AND SERVICES FALLS IN THE COUNTRY

SCENARIO 4

ECONOMIC GROWTH INCREASES IN THE COUNTRY

State the term MOST appropriate for the scenario

• GROWTH

• BOOM

• RECESSION

• SLUMP

THEN…..

WRITE ON SHEETS WHAT OTHER EFFECTS THIS MAY CAUSE.

SCENARIO 1• PRICES OF GOODS HAVE GONE UP AND PEOPLE

ARE NOT SPENDING MONEY

SCENARIO 2• THE NUMBER OF GOODS BEING PRODUCED AND

SOLD IS GOING UP

SCENARIO 3• BUSINESSES ARE LOSING MONEY AND ARE NOT

SURVIVING

SCENARIO 4• PEOPLE ARE SPENDING TOO MUCH CAUSING

PRICES TO RISE QUICKLY

PLENARY• From this lesson I have learnt that the desired economic

objectives of the government are: