Less jobs will be available as aggregate demand will decrease. This can also lead to a reduction in investments. Government can increase its spending as a means to increase aggregate demand. The more goods and services purchased, the more likely it is that businesses will make sales and will be forced to increase their production levels. Increase in production leads to increased jobs, more money for people to spend on goods and services.
Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure. The benefits of economic growth include: Higher average incomes. This enables consumers to enjoy more goods and services and enjoy better standards of living. Lower unemployment With higher output and positive economic growth firms tend to employ more workers creating more employment UK unemployment rises during a recession – falls during periods of economic growth.
This allows each country to maximise their production positions through the use of international trade. The net effect is increased production of a specific product/ service that would have otherwise been possible. Stated differently, the combined PPF of both countries is larger than the PPF of each country alone. The PPF can also be used to describe inefficiency in production, unemployment, and the business cycle. During a recession, the economy produces below potential GDP due to unemployment.
Thus, the interested customers will be willing to pay higher prices to purchase these goods. This theory is also part of Keynesian argument. The figure 2.0 shows what happens in demand pull inflation. So as the demand increases the prices also increases moving from AD1 to AD3. Figure 2.0 Causes of Inflation Some of the causes of inflations are: i. Demand-Pull inflation.
Another impact that this can have is that the government spending may be lower, however it will be higher on welfare payments as there will be more unemployment and less income. Ripple Effect The ripple effect is the consequences caused by a decision from a business. These consequences can be positive or negative. For example, when the UK leaves the EU, there will be a ripple effect. Britain do a lot of trading and by many products overseas, but Brexit will make this harder and a lot more expensive which means that businesses such as Tesco that buy many of their products abroad will be paying more for their products.
International trade of biofuel is expected to grow rapidly over the next decade, mainly with exports from Brazil to the US and EU. However, biodiesel trade isn’t expected to grow due to matters with trade in palm oil and increased national production of biodiesel by consuming countries. In 2010, the European Biodiesel Board estimated that the European biodiesel production total was 9.6 million metric tons. They believe that the EU is responsible for over 50% of the world’s biodiesel output. However, production decreased by 10% to 8.6 metric tons in
The cost of borrowing gets impacted by the change in interest rates as mentioned before. When the rates increase, the banks charge a higher rate for the loans they give out. Starting a business or expanding the business at times of high interest rates hamper growth and result in lower revenues and delayed profits. Interest rates for personal loans also go up at the same time therefore the purchasing capacity of the consumer also reduces. They have to pay higher interests, which results in lower disposable income, which in turn results in lesser purchasing capacity.
In case there is depreciation in the exchange rates then it will increase the cost of imports and decrease the cost of exports which will lead to increase in inflation. Factors that influence the exchange rates. 1. Government debt - Foreign investors get attracted to those countries which have less amount of debt rather than those countries with high debt. Mainly inflation is the reason for a country to debt to increase and it also decreases the value of currency.
The number of new businesses being started/ number of entrepreneurs: increase in their number helps us increase the GDP, as well as the problem of unemployment in the country. Housing market: A fall in the prices of housings may imply that the supply exceeds demand., It may also come to mean that the existing prices are unaffordable, and/or that housing prices are inflated and will correct themselves by means of a burst in housing bubble. This was seen in the infamous episode of the sub-prime crisis Retail Sales: the growth in the retail sector demonstrates the amount of disposable income that people possess and are willing to spend. More significantly, strong retail sales increases GDP directly. It also increases the strength of the home