The Economy

Learning outcomes The main learning outcomes for this lesson are: Understand what the economy is and who is affected by it. To learn what the business cycle is and the keywords associated with it. To gain a clear understanding of foreign exchange rates, plus buying and selling foreign currencies.

What is the economy? Who has heard of the economy before? (Hands up!)

Keywords Items such as magazines, CDs, games, etc. that you might buy once a week or once a month are goods. Travelling by train or having your hair cut is a service. When you buy goods or services you are a consumer. The companies that provide the goods or services are known as producers. The Government runs the country, the prime minister is in charge of the government. The government manages the economy, they can change the way that businesses run and influence the economy by passing laws or by changing their own spending or taxes. E.g. they can put taxes up!

So what is the economy? It is the link between the consumers and producers and how they work together using people and resources to produce goods that people need and want. So in short: economy=consumer + producer. The economy is made up of all activities involving earning, spending and saving, and the production of goods and services.

The Economy This diagram shows how each of the keywords we learnt at the start of the lesson interact together. This is the economy. If something changes e.g. the government decides to put up prices of goods or services (this is known as inflation) it would affect everyone in the diagram. Consumers Producers Spending Wages

Who is affected by the economy? Everyone!! We are all consumers, we all pay taxes and we are all affected by prices going up or down.

The business cycle The economy is the amount of production that is taking place in the country. Over time the economy can move up or down in a business cycle. Here is a business cycle diagram

Business cycle explained A boom in a business cycle is the situation that all businesses want to be in, it is where businesses produce more goods and hire more staff to deal with the demand. Businesses are making profit as consumers are getting better wages and have money to spend. The economy experiences an economic growth. A recession is when there are falling levels of consumer spending and confidence. This means for some reason the consumers are not spending their money. Recession affects different businesses in different ways. If you are selling non-essential luxury items you will be hit the hardest as consumers will buy essential items first as they do not have enough money to buy luxury items. A slump means many businesses/companies are not making as many sales so money is tight. They have to lose some staff to save money on wages. This is known as redundancies. Some businesses may have to close as they are not making enough money to cover their costs. The economy experiences a recession. A recovery is when the country is coming out of a recession and is slowly starting to make money again. Businesses see a slight increase in their sales and consumers are staring to buy luxury items again.

Activity You must complete the business cycle worksheet. You will need to label the diagram. You have 5 minutes!

Answer

Exchange rate In pairs write down on a piece of paper all the different currencies in the world you can think of. You must write down the currency and the country that uses it. The pair with the most will get a merit.

Possible answers England – Pound Euros – European countries Australia – Australian dollar Switzerland– Swiss franc South Africa – Rand Japan - Yen USA – US dollar

Exchange rate continued When you go on holiday aboard you will need to change your pounds into the right currency for the country you are visiting. What you get for your pound is called the Exchange Rate. For example: If you were going away to the USA on holiday with your family and the current exchange rate was $2 dollars to £1 pound then £1 pound would buy you $2 dollars. The more dollars you get for your money the stronger the pound is. If you were getting only $1 dollar for £1 pound then the pound is weaker against the dollar.

Exchange rates and business The Exchange Rate affects businesses as well as people going on holiday. If your business buys or sells goods from different countries then you will need to keep a close eye on the exchange rates.

Activity You will now answer some questions on everything you have learnt from this lesson on the economy. You will need to work on your own. You have 15 minutes!