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: