The government plays an important part in the economy. There are different types of organisations like the Local, UK and the European government which control businesses. They try to make sure most people are employed, and they encourage new businesses to start in the UK. The government also calculates the GDP (Gross Domestic Product) which is the total amount earned or produced by the country.
They calculate this in three ways, by expenditure - how much people in a country spend in a year, by income – how much people earn in a year and lastly by output, - calculating the value of goods and service produced in a year.It is good when Britain’s economy is healthy, due to the fact that people use money to hire labour and pay wages, which means they tend to spend more money on goods. The richer everyone is, the more people are employed. This leads to the government saving money because they still get their taxes, but don’t have to pay benefits. It helps the economy when companies hire more workers because they don’t have to pay benefits to those people who are employed.
This goes in a cycle e. g. the factory hires workers, they pay wages, they workers live in a house, they buy more goods from shops, and the shop then buys goods from the factories, and so on. The government’s job in the economy is that they try to set low taxes so consumers are able to spend and to have “spare money”. For businesses to invest in new things e.
g. technology, equipment and staff. To encourage people to export more than they import. It’s important for the government to try to get everyone employed so that they get taxes they get, so that they can spend it on the economy.It can be difficult to get everyone employed because skills can be outdated, such as technology is always improving. Also people with disability problems and people who have no choice to stay home due to their children they have to look after.
Inflation is when prices of goods in stores have increased. Inflation can be measured in two ways, the RPI (Retail Price Index) and CPI (Consumer Price Index). Basically they get a typical basket of goods and calculate if the prices have gone up (inflation) or down. This also used to set wage rises.High inflation is a problem because, British imports become more expensive and they cant compete with cheap imports.
People struggle with increasing cost especially if they’re on fixes income or pensioners. Also people buy less each year so savings loose their value. They can control this buy increase interest rates, this encourages people to save rather then to spend or borrow money to buy items. Deflation is the opposite of inflation. Deflation can be a problem because people wait for prices to drop, so people stop spending as much.
This then leads to demand drops and unemployment rises. Balance of payments is when the UK makes money when they export and spend money when they import. However it’s a problem when your importing more than your exporting, because their loosing more money than their earning. Balance of payment are the same, if they’re buying and selling the same amount. The government can’t control imports/exports because it’s against the principle of the EU and the World Trade Organisation (WTO).
They both promote free trade around the world.The exchange rate impacts on businesses if the value of the pound increases or decreases. For example if the exchange rate decreases, firms who export to China, their prices fall for the Chinese this makes the Chinese more likely to buy English goods, however if the English companies need their raw materials their cost will rise which is bad news. It’s exactly the opposite if the exchange rate increases. All businesses and organisations have laws, they follow a legal framework, these are there for our own safety and needs.
Such as the Health and Safety Law, for example, wearing protective clothing if you’re a fire fighter, where helmets if you’re on a building site, flowing fire regulations etc... Employment is another law, where you have minimum wage, setting a limit on working hours, there’s laws against discrimination on race, gender etc… Consumer goods is an important one, where there are laws which control the sale of goods particularly food, so you can’t sell goods if the use by date is past. The Enviroment law is an environmentally friendly law for example businesses are encouraging people to use less plastic bags.
