Page 5 - Griffenomics

FACT:

THE OLYMPICS TAKE PLACE EVERY 4 YEARS, WHICH IS THE NUMBER OF YEARS NEEDED TO COMPLETE AN ECONOMICS COURSE AT SOME UNIVERSITIES

SPRING ISSUE

GRIFFENOMICS

5

Olympics to stimulate economic recov-

ery through employment opportunities.

Why does the UK government want a

high employment rate? Well, it means

that Britain will move towards its Pro-

duction Possibility Frontier, or PPF. The

PPF of a country is a curved graph that

indicates the maximum amount of goods

and services that it is able to produce

during a period of time with a fixed qual-

ity and quantity of factors of production.

As of now, the UK is far from its PPF due

to unemployment (7.2% as of October to

December 2013) and the under-utilisa-

tion of other factors of production such

as land, capital, and entrepreneurship.

The government wants a high employ-

ment rate because the employment of

spare labour will allow these people to

have a stable income, and this is ben-

eficial for the UK in many ways. With

more income, people are able to spend

more money, leading to an increase in

the consumption of goods and services

in the country. Also, the government

will be able to receive more tax revenue

since more people are able to pay tax

with more income. The reduction of the

unemployment rate will allow the UK

government to reduce its unemployment

welfare expenditure and potentially use

that money elsewhere, such as building

new schools and hospitals.

Overall, the increase in consumption

and the potential increase of government

expenditure due to increased tax reve-

nue, causes the Aggregate Demand of the

UK economy to increase. Aggregate De-

mand is the total spending on goods and

services in an economy over a period of

time. It consists of consumption, govern-

ment expenditure, investment, and the

balance of payments (exports - imports).

When Aggregate Demand increases, it

creates short-term economic growth

which is beneficial for the economic re-

covery of the UK after the recession.

Furthermore, the increased government

expenditure on public services, such as

education and health care, increases the

quality of the factors of production be-

cause the labour force will be more e¢-

cient and productive, due to better ed-

ucation and health care. Moreover, the

provision of better education may lead

to a higher number of entrepreneurs, the

people who are willing to take risks to

gather other factors of production to pro-

vide goods or services. In the long term,

this increase in the quality and quantity

of factors of production will cause the

PPF of the UK to shift outwards, mean-

ing that more goods and services can be

provided. This is a longstanding objec-

tive that the UK government would like

to achieve through establishing high em-

ployment rates.

So, there it is, a fundamental intro-

duction to the complicated world of

economics, all through the London 2012

Olympics.