What is the economy?
The economy is a system which defines how a country is doing financially through production and consumption of goods and services and they supply of money. The three different types of economy are: market, planned and mixed. The economy consists of consumers, producers and the government.
A planned economy is when the government makes all the decisions for society. Producers working towards the economy are instructed on what to make. A benefit to this type of economy is that most workers are employed and most people enjoy a similar basic lifestyle. A disadvantage is that wages are controlled by the government; therefore motivation levels are not high. ...view middle of the document...
Interest rate: The interest rate is the cost of borrowing money or the return for investing money. A bank usually charges interest when somebody loans money from them. The interest rates are set by the Bank of England. The effect of a change in interest rate depends whether the borrowing is a fixed or variable rate.
Inflation: Inflation is an increase in the cost of living or the average /general price level leading to a fall in the purchasing power of money. The rate of inflation is measured by the annual percentage variation in consumer prices. Inflation is calculated by the cost of living depending on the measure of changes in the average cost of buying a basket of different goods and services for a typical household.
Demand and Supply: Demand is how much a person desires for a certain product or service. Supply is the amount of a product businesses are prepared to sell at different prices. A market price is the amount customers are charged for items and this depends on the demand and supply, so therefore the market price changes when supply and demand patterns change.
Labour: Labour is when you study the economic behaviour of employers and employees in response to changing prices, profits, wages and working conditions. In addition, this involves looking at the employment rate and seeing how it fluctuates through the different cycles of the economy.
Government policy: These are policies that the government put in place that affects the economic field. It covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market and other area of the economy that the government can intervene in. Many factors of economic policy can be allocated into fiscal policy or monetary policy.
The boom is when there are high levels of economic growth. Given that, at this time the economy is doing well then the employment levels are high and wages rise as businesses try to attract employees and also there is consumer confidence as people are earning more, therefore they can spend more on goods that they want, which will benefit businesses as they will have higher revenue.
This is a period where economic growth slows down and the output level decreases meaning that not many goods are made by businesses to save money. The unemployment rate starts to decline and businesses lose confidence and start to reduce investment to prevent losing more money.
This is the lowest part of the economic cycle. This stage of the economic cycle marks the start of a period of decline in business activity. Furthermore, at this stage of the cycle level output hits the lowest it can be and consumer confidence starts to fade away as they unemployment rate at this time is very low, so people do not have much money to spend, therefore businesses cannot prosper.
A recovery in the economy is the signal to show that the recession is ending. The recovery is not...