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www.fetsystem.

com [GCSE ECONOMICS SECTION 6 REVISION NOTES


Retail price index
Retail price index is used to measure inflation in an economy
There is a base year set according to which price changes are monitored
The prices of essential products are measured
Causes of inflation
Inflation is a persistent general increase in the overall prices of goods
The 3 main causes of inflation are:
Demand pull
Cost push
Money supply
Cost push
Inflation created by increase in costs
Costs may increase due:
Increase in raw materials cost
Increase in wages
Taxes imposed by the government
Demand pull
Inflation due to increase in demand
Demand may increase due to:
People may have more money
Change in spending pattern
Increase in the population
Consequences of inflation
Effects of inflation on the following people:
Governments
Businesses
People on fixed income
Borrowers and lenders

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www.fetsystem.com [GCSE ECONOMICS SECTION 6 REVISION NOTES


Governments
It is a primary objective of government to main price stability
The government may allow an inflation rate of 3-4% for economic growth
The government is hit hard if there is a inflation rate of 10%, because causes
instability
Businesses
Businesses may benefit from an increase in price as it encourages investment
Hyperinflation, which is 10%, causes instability and businesses are unable to
sell their products
People
People on fixed income are hit very hard because their incomes do not
increase with the increase in prices
People earning money linked to the inflation rate are not affected at first, but
if inflation prolongs they may also be badly affected
Borrowers and lenders
Person A lends 100 from person b to repay after 1 year. There is inflation rate
of 10% the following year. Person A returns the money after 1 year.
In real money value person a returns 90
Borrowers are badly affected by inflation
Lenders benefit from the inflation
Changing patterns and levels of employment
People in developed countries mostly work in the tertiary sector
People in the developing countries mostly work in the secondary sector
More and more women are joining the labour force
Causes of unemployment
Frictional unemployment
When employees are between jobs
Cyclical unemployment
When employees lose jobs in recession
Structural unemployment
Lack of demand for the product makes the employees redundant

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www.fetsystem.com [GCSE ECONOMICS SECTION 6 REVISION NOTES


Consequences of unemployment
Decrease in goods and services produced
Frustration among the unemployed
Burden on the government to pay
Crime
Gross Domestic Product (GDP)
The value of goods and services produced in a country in a time period
Methods to measure GDP
Income method
Expenditure method
Output method
Measures and indicators of comparative living standards
GDP per head
Human Development Index (HDI)

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