Some say economics is the study of scarcity. That is because resources, ie workers, land and raw materials, are limited but the demand for them is endless.
So, an economy is how we use these scarce resources. And when we talk about ‘the’ economy, we usually mean the UK’s economy.
Put plainly, it is a rather broad term that refers to: how people make, buy, and sell goods and services; how money flows between people, businesses and governments; and how those things affect the overall value of resources, assets and goods in a country.
In some countries, the government chooses what to produce, how much and for whom. In others, it is determined by what people want to buy and how much businesses can provide – this is known as supply and demand.
What is my role in the economy?
We all shape it through our choices. You are contributing to it every time you buy something or go to work. And it also has an impact if you choose to spend or work less. What everyone does with their money can determine how the economy is doing. Which brings us to…
How can you tell if it is doing well?
People use many expressions to describe the economy. They say it is healthy, thriving or in a good place. In bad times, it is weak, struggling and depressed. As far as we know, it cannot feel hungover.
Four things give you an idea of how the economy is doing:
- GDP – or economic growth. This is a measure of all the goods and services produced in a country over a period, for example, a year. An increase means the economy is growing.
- Inflation – the pace at which prices in shops rise. The Government considers anything above or below 2% undesirable.
- Unemployment – how many people want to work but can’t find a job. The fewer, the better.
- Inequality – how a country’s wealth is distributed. Economists tend to see high inequality as a sign of an ‘unhealthy’ economy.
What is the Bank of England’s role?
Our job is to make sure inflation is as close to 2% as possible. We do this mainly by influencing interest rates (the amount you pay for a loan or how much you make on your savings account).
We also keep an eye on any threats to the economy and step in when we can. This can be anything from cyberattacks on banks to the size of people’s mortgages.
