At the end of this unit I will:

2. Learning Intentions At the end of this unit I will: • Know about and understand inflation • Understand employment and unemployment • Understand interest rates, the cost of borrowing • Apply the concepts of national income and national debt • Value the importance of economic indicators to individuals and our economy

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4. BEFORE WE BEGIN #04AFEF Do this exercise individually or in pairs. Tick whether you agree or disagree with the statements. Revisit it after the unit to see if you have changed your mind about any of them.

5. Websites Wonderful Worthwhile Websites www.finfacts.ie www.cso.ie www.ntma.ie www.centralbank.ie www.revenue.ie 5

6. Introduction • We refer to the economy of Ireland as our national economy • Factors that affect the economy are called economic indicators An indicator is a measure. It can help individuals, households and organisations to make decisions. Indicators are also knows as variables and factors. 6

7. Economic Indicators The eight most important economic indicators affecting our economy are: • Inflation • Employment rates • Interest rates • Economic growth • National income • National debt • Exchange rates • Taxation 7

8. Inflation • Inflation causes a rise in prices Inflation is rising prices over a period of time, usually one year. • This decreases your purchasing power • The rate of inflation is calculated as follows: 8

9. Example 1 A chocolate bar cost €1.00 in 2015 and €1.05 in 2016. This is inflation of 5%. We calculate this as follows:

10. CASE STUDY TAYTO PACKS FROM THE 1970s In the 1970s a bag of Tayto crisps would have cost you 3 pence (or 8 cents in euros). In 1990 a bag cost in the region of 14 pence (or 18 cents). By the end of 2001, the price was 28 pence (36 cents). What is the price of a bag of Tayto crisps today? Read the full case study on page 495 and draw a graph of the price increases.

11. Be Savvy To keep the value of our money, we need to choose our investments wisely, ensuring that our money holds its purchasing power. If inflation is 5% we would need at least 5% interest on savings for our savings to have the same value. 11

12. Time to think Do you think interest of 5% would match inflation of 5%? What about DIRT? Remember, taxes on savings reduces our interest.

13. Inflation: Different Perspectives Consider the impact of inflation from the following perspectives: • Be an Economist – how does the Consumer Price Index (CPI) help? • Be a Saver – how will inflation affect your savings and purchasing power? • Be a Banker – what would you do if inflation was rising? • Be an Entrepreneur/Be a Business – what is the impact of inflation? • Be a Union – how will inflation impact employees? • Be an Exporter – will exports increase or decrease with rising inflation? • Be the Economy – what is the impact of high inflation? What is the impact of low inflation? 13

14. Example 2 The basket of products and services costs €1,000 in 2019. The same basket of products and services costs €1,100 in 2020. The rate of inflation is 10%.

15. Be Numerate A basket of products and services costs €100 in 2017. The same basket of products and services costs €105 in 2018. Calculate the rate of inflation. 15

16. Be a Researcher Research, using a search engine, what the price of certain products were ten years ago. Compare the prices with the price of the same products today. 16

17. CHECKING IN Look at the graph on page 477. • Explain the term inflation. • Identify the year that had the highest rate of inflation. • Identify the year that had the lowest rate of inflation. • Calculate the average rate of inflation over the five years.

18. Be Numerate • If your pocket money is €20 per week now, and the rate of inflation is 1%, calculate how much you would need to receive per week in the next year to keep up with inflation. • Find out the current inflation rate and compare it with the rate for the last ten years. Describe the drifts and present the information using an appropriate graph or chart. 18

19. Time to think Employment Rates Foreign firms see Ireland as a good place to locate. • Low taxation rate • Highly-educated, English-speaking workforce • Access to the European market (EU) Ideally, we would like to have full employment, but not everyone is available for employment. Can you think of people who might not be available to work? 19

20. Employment Rates The labour force is all those between the ages of 16 and 65 who are available to work. The labour force is made up of: • The total employed • Those unemployed who are available to work The rate of employment is calculated as follows: 20

21. WORKING WITH OTHERS #04AFEF Source the following figures (use www.finfacts.ie). Present the information visually. • What is the population of your nearest town/city? • What is the population of Ireland? • What is the population of the EU? • What is the population of the world? • What is Ireland’s unemployment rate? Page 498

22. Unemployment People who are not in work, but who are available for and actively seeking work, are known as unemployed. • A country will never have zero unemployment • The full rate of employment is considered to exist when unemployment is approximately 4% • Unemployed people can receive the Jobseeker’s Benefit or Jobseeker’s Allowance from the government • To receive benefits, they must register as unemployed and prove they are currently seeking work • The Live Register contains the names of those in receipt of Jobseeker payments 22

23. Unemployment The rate of unemployment is calculated as follows: WORKING WITH OTHERS #04AFEF Be the Government: If you were the government, what might you do to reduce unemployment? Page 499 23

24. Interest Rates Interest rate is the rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the amount borrowed or saved. • If we save money, we receive income called interest • If we want to borrow money we have to pay a fee and this fee is called interest • The rate of interest on a loan is calculated as follows: Rate of interest = Loan amount/100 x Percentage rate/1 = € 24

25. Example 3: Interest on a Loan If the interest on a €100,000 loan is 7%, how much interest do you pay every year?

26. Interest Rates: Borrowing and Saving • We can borrow from financial institutions and pay interest • We can save with financial institutions and receive interest • Banks make a profit by charging a higher interest rate for borrowing than they pay savers • The interest rate is applied to the total unpaid portion of your loan or bill • An increase in interest rates increases the cost of living • A bank must quote the annual percentage rate (APR) when lending money 26

27. Interest Rates: Different Perspectives Be a Borrower Be a Depositor • If interest rates are low then the interest/expenditure you pay on your borrowings will be low • If interest rates are low then the interest/income you get on your savings will be low • If interest rates are high then the interest/expenditure you pay on your borrowings will be high • If interest rates are high then the interest/income you get on your savings will be high 27

28. Interest is the fee they charge for money. Banks are businesses whose objective is to make money, just like any other business.

29. Example 4: Flat Rate vs APR • Derek Ryan wants to borrow €15,000 over three years • He will repay €5,000 plus interest at the end of each year • Carter Finances Ltd offered Derek a flat rate of 10% and English Finances Ltd offered him 11% APR • Calculate the interest

30. Example 4: Flat Rate vs APR

31. Be Numerate Steve and Róisín want to borrow €20,000 over three years. They will repay €5,000 plus interest at the end of each year. BOI Finances offered a flat rate of 10% and AIB finances offered 11% APR. Calculate the interest. 31

32. Economic Growth Economic growth occurs when there is an increase in general domestic product (GDP). When a country experiences economic growth: • Employment increases • Unemployment decreases • Standard of living improves • People have more money to spend Economic growth needs all economic variables to be controlled, for example low inflation and interest rates. 32

33. Example 5: Economic Growth as an Amount

34. Economic Growth: GDP The percentage change in GDP is calculated as follows: 34

35. Example 6: Economic Growth as a Percentage (Increase) • In 2020 €200 million is produced in Ireland • In 2021 €220 million is produced in Ireland = Growth

36. Example 7: Economic Growth as a Percentage (Decrease) • In 2020 €200 million is produced in Ireland • In 2021 €195 million is produced in Ireland = Recession

37. Economic Growth: GNP Economic growth can also be measured using gross national product (GNP). GNP is the total value of goods and services produced, excluding: Income sent to other countries, by people from other countries living here Income coming into Ireland, earned by Irish living abroad 37

38. Economic Growth: Different Perspectives Be an Individual: Growth Be the Economy: Growth • Higher employment • Extra income for government • Banks will lend • Higher tax revenue • People buy new products • Pay off part of government debt • Increased demand for houses • Standard of living improves 38

39. Economic Growth: Different Perspectives Be an Individual: Fall Be the Economy: Fall • Emigration • Brain drain - emigration • Decrease in employment • Rise in unemployment • Decrease in spending • Very little investment • Standard of living falls • Risk of business closures 39

40. CHECKING IN • In 2019, €180 million is produced in Ireland. In 2021, €220 million is produced in Ireland. Complete the calculations (a-c) on page 502. • In 2020, €150 million is produced in Ireland. In 2021, €125 million is produced in Ireland. Complete the calculations (a-c) on page 502. • What happens when we have growth in our economy?

41. CHECKING IN • What happens when we have recession in our economy? What might the government do if there is a recession? • Present the above information in a visual format.

42. National Income National income is the total value of all income in a nation during a given period. It includes wages, profits, and interest. There are three ways to calculate national income: • Income method – add all income received during a year • Output method – add the value of goods and services produced in a year • Expenditure method – add all spending in the economy 42

43. National Income: Different Perspectives Be an Individual: Increase Be the Economy: Increase • Standard of living improves • More goods produced • More opportunities What do you think is the effect on the individual and the economy if the national income falls? • Employment goes up • People are better off • Extra government revenue 43

44. National Debt National debt is the total amount of money borrowed by the government. There is a cost to the government for borrowing money. Interest is also known as debt servicing. • 2015 national debt = €203.2 billion • Interest on €203.2 billion was €8.457 billion 44

45. National Debt: Different Perspectives Be an Individual: Increase Be the Government: Increase • Taxes increase • Taxes increase • Less money to spend • Costs go up • Reduction in the amount and quality of services • Less spending in the economy • Unemployment increases 45

46. National Debt: Different Perspectives Be an Individual: Decrease Be the Government: Decrease • Taxes can be reduced • More money to go around • More money to spend • Better services provided • More jobs available 46

47. Be a Researcher Use websites to source information on Ireland’s economic indicators. Copy and fill in the ‘Economic Indicators Learning Sheet’ on page 504. Make a note of the websites you used and the date you used them. 47

48. Find out what the current ECB rates are. The key interest rates in Ireland are controlled by the European Central Bank (ECB), which sets the main rates for all of the eurozone countries.

49. CHECKING IN • Create a fishbone summary of this unit using your fishbone template (page 546). • Copy this octopus template and write down the eight main economic indicators.

50. 3.9 ECONOMIC INDICATORS • What is often expressed as an annual percentage of an amount borrowed or saved? Quick Quiz Consumer Price Index (CPI) Gross national product (GNP) Interest rate