Economic indicators are official statistics that measure the health, performance, and direction of a country's economy. In the Junior Cycle examination, you must explain what these indicators mean and show how changes in them affect individuals, businesses, and government finances.
Prices and Borrowing: Inflation and Interest Rates
Inflation is a sustained increase in the general level of prices of goods and services over time. In Ireland, the Central Statistics Office (CSO) measures it using the Consumer Price Index (CPI).
- When inflation rises, money loses purchasing power, so wages buy fewer everyday goods.
- Higher costs for stock and energy make Irish exports less competitive abroad.
- Causes of inflation include cost-push (higher production costs like wages or energy are passed on in higher prices) and demand-pull (demand for goods exceeds supply, so sellers raise prices).
An interest rate is the cost of borrowing money or the reward for saving. The European Central Bank (ECB) sets the main interest rates for countries that use the euro, including Ireland.
| Stakeholder | When interest rates rise | When interest rates fall |
|---|---|---|
| Borrowers | Loan and mortgage repayments rise, reducing spending | Repayments fall, leaving more disposable income |
| Savers | Earn higher returns on savings deposits | Earn lower returns on savings accounts |
| Businesses | Loan repayments increase; expansion plans slow down | Cheaper borrowing encourages investment and hiring |
When rates rise across the euro area, people spend less, which helps to slow inflation.
Work and Output: Employment and Economic Growth
The employment rate is the percentage of people of working age who have a job. The CSO measures it through the Labour Force Survey. Unemployment refers to people who are available for work and actively seeking a job, but cannot find one.
- More households earn a regular income, raising their standard of living.
- The government collects more tax through PAYE and VAT.
- Less public money is spent on Jobseeker's payments, freeing up funds for schools and hospitals.
Economic growth is the increase in the quantity of goods and services produced in an economy over a year. It is measured by the change in Gross Domestic Product (GDP), the total value of goods and services produced in the country in a year. Gross National Product (GNP) is also accepted as the official measure.
- Steady growth creates jobs, boosts business profits, and provides state revenue to improve infrastructure.
- Rapid growth can bring problems, such as traffic congestion, rising house prices and more pollution.
State Finances: National Income and National Debt
National income is the total income earned by a country's residents and businesses in a single year, including wages, profits, rent, and interest.
- Rising national income indicates expanding wealth, allowing the state to fund public services without raising tax rates.
- Higher national income does not mean every citizen is better off, because extra income may be shared unevenly across the country.
National debt is the total accumulated sum of money borrowed by the central government over time that remains unpaid.
- A budget deficit occurs when government spending exceeds tax revenue in a single year, adding to the national debt.
- Paying interest to lenders on this debt (debt servicing) uses up tax revenue that could otherwise fund public healthcare and education.
- Borrowing to build a project such as a new rail line can raise future output, so the debt may be worth taking on.
Key terms
- Economic Indicator
- An official statistic used to judge the health, performance, and trends of a country's economy.
- Inflation
- A sustained increase in the general level of prices of goods and services over time.
- Consumer Price Index (CPI)
- The official measure used in Ireland to track average price changes across a standard basket of consumer goods and services.
- Interest Rate
- The percentage cost charged for borrowing money or the percentage reward earned on savings.
- Unemployment
- The state of being available for work and actively seeking a job but unable to find one.
- Economic Growth
- The increase in the amount of goods and services produced in an economy over a period of time, usually one year.
- National Income
- The total income earned by a country's individuals and businesses in a year through wages, profits, rent, and interest.
- National Debt
- The total cumulative amount of borrowed money that a government owes to lenders.
Check yourself
What is the official measure of inflation used in Ireland?
The Consumer Price Index (CPI).
State one cause of inflation.
Cost-push — higher production costs such as wages or energy are passed on in higher prices.
State one financial benefit to the government when the national employment rate rises.
It collects more PAYE income tax and spends less money on Jobseeker's payments.
How does an increase in interest rates affect savers?
Savers earn a higher return of interest on their bank deposits.
Why might a rise in national income fail to make every household better off?
The additional income may be distributed unevenly, or high inflation may reduce real purchasing power.