Hello, my name's Miss Ikomi.

I'm a teacher from London and I'm going to be taking you through today's lesson.

Let's get started.

Today's lesson is called: Is UK Government action led by the economy? It is part of the wider unit: How does the economy work? By the end of today's lesson, you will be able to explain how we know if the economy is healthy and how the economy affects the UK Government.

The keywords for today's lesson are: economy: this is the state of a country or region in terms of the production and consumption of goods and services and the supply of money.

Inflation: this is the rate at which the prices of goods and services rise over time, meaning money gradually loses values.

We're gonna start by thinking about how we know if the economy is healthy.

The economy is the state of a country or region in terms of the production and consumption of goods and services and the supply of money, our keyword from the beginning of today's lesson.

It can be seen as all business activity and wealth creation in the country.

In a constant state of change, the economy fluctuates, but it needs to be healthy and steady for all of us in society to benefit.

The economy consists of lots of simple transactions.

Something is bought from someone who sold it: that's a transaction.

Every penny I spend, somebody else earns, and every penny I earn, someone else spends.

For example, a baker makes a loaf of bread and I buy it.

I've spent my money and the baker has earned it.

With the money he's earned, he can buy more flour to make more bread, spending the money that I give him and enabling him to earn more.

Two transactions have happened there.

Those transactions are all connected and that connection is what makes the economy.

If the economy is healthy, it's considered to be lots of different words: stable, growing, strong, resilient, sustainable, thriving, prosperous, flourishing.

You might hear these different ways of describing the economy when everything is going well.

Let's check what we've done so far.

Which of the following is not a term used to describe a healthy economy? Stable, flourishing, weak or growing? Pause your video and have a go at this now.

The correct answer was weak.

Well done if you got that right.

There's lots of ways that we can tell if an economy is healthy.

The steady gross domestic product, GDP growth, the economy is expanding at a sustainable rate and producing more goods and services.

Low unemployment, that means that most people who want jobs can find them and wages can increase in line with the rising prices, so it's easier for everyone to live based on their earnings.

And last, stable inflation: prices rise gradually without major spikes, and that means that everybody gets the prices they expect for goods and services.

Izzy is asking Jacob what the gross domestic product means, 'cause she's not heard GDP before.

Jacob's telling us GDP means that the value of all the goods and services that a country produces over a specific period is a key indicator of economic health, it measures the economy's size and growth within a country.

There are more ways that we can tell if the economy is healthy.

For example, having balanced trade: imports and exports are relatively stable, we are not dependent on them.

That means the things coming into and out of the country.

Strong consumer confidence: that means that people are spending and investing confidently because they know that they're going to have a return on their investment or spend.

And healthy business environments: companies are hiring and investing in the business.

Stable financial markets, also to show this, there are no major crashes or instability within those markets.

If the economy was not healthy, the opposite effects would be seen.

For example, we might fall into something that is called a recession where we have a consistently weak economy over a few months.

A recession is this period of decline where the economy shrinks for two consecutive quarters.

That means quarters of the year.

That means there's a negative growth in the GDP.

Let's do another check.

True or false? A falling GDP is a sign of a healthy economy.

Pause your video and choose your answer now.

The correct answer is false.

This is because a falling GDP for two consecutive quarters is categorised as a recession.

A healthy economy is showing the opposite, a steady growth GDP.

If an economy is healthy, inflation is stable.

Inflation is the rate at which the prices of goods and services increase over time.

That means that it will reduce the purchasing power of money over this period of time.

Stable inflation means that prices are rising at a predictable and moderate rate.

Typically, we would expect that to be around 2% per year.

That allows businesses and consumers to plan ahead in terms of how much things are going to cost.

If inflation is too high, the cost of living rises too quickly, meaning that essential items are less affordable for citizens living in that place.

If it's too low or negative, deflation, economic growth can slow as people delay spending.

A stable inflation rate helps maintain a balanced and healthy economy.

For example, in October, 2022, inflation in the UK shot up from an average of 2.

82% to 11.

1%.

That meant the prices for everyday things like food, energy and transport rose really fast.

This happened because of a mix of different things going on.

We had an impact of the COVID-19 pandemic.

There were supply chain issues and the war in Ukraine impacted this further.

This made fuel and food more expensive.

To try to control inflation, the Bank of England raised its interest rates, making it more expensive to borrow money.

This leads to higher mortgage rates, meaning that people with home loans had to pay much more each month.

At the same time, supermarket prices soared, making essentials pricier.

That hit a lot of people hard.

All these things happening together showed that people have less money at the end of the month because the same amount that they had been paid didn't go as far.

If an economy is healthy, the citizens within that country will see the effects of this on their lives.

For citizens, that might mean that more jobs are available, people have more cash, they can easily get loans, consumers spend more and they also buy higher value goods.

For businesses, they may consequently be able to sell more goods or services, can buy more stock, can make their premises larger, can recruit more staff, and they can also take a loan out to diversify their business.

An example of a healthy economy is Germany in the late 2010s.

Germany's economy was strong because it had steady growth, low unemployment, and stable prices.

In 2010, Germany's economy grew by 3.

6%.

That was the fastest since World War II.

Businesses were confident about the future.

shown by a high business confidence index in December, 2010.

Unemployment was also low.

That meant that most people who wanted jobs could find them.

Prices were rising at a steady rate.

That means people could afford everyday goods and didn't have to expect any big price jumps.

All of these together show that there was a healthy economy in Germany during that time.

Aisha's asking, "Does the UK always have a stable, healthy economy?" The answer to this question is no.

The UK doesn't always have a stable, healthy economy.

Sometimes it grows well, like after the 2008 financial crisis, but other times it struggles.

For example, during Brexit uncertainty and at the height of the COVID-19 pandemic.

Things like inflation, job losses and government debt can make the economy weaker at certain times.

After the recession in 2008, unemployment dropped and inflation remained steady.

That showed that there was a recovery to the economy after this challenging time.

Aisha says, "I don't like the idea of the UK economy not always being strong and stable." Although it can feel very scary, it's important to remember that no country always has a stable economy.

That's because there are ups and downs in terms of things that are going on around the world, natural disasters, political changes and changes to economic policies.

Even the strongest economies can face problems, such as recession and inflation.

That means that we're always going to see ups and downs in economies.

Let's do another check.

I'd like you to read the sentence below and fill in the missing words.

Pause your video now.

Let's check our answers.

In a healthy economy, there are more jobs.

Consumers spend more and businesses sell more.

These are signs of a strong economy that is not in a recession and that has stable inflation.

Well done if you got that correct.

Let's put this into practise.

I'd like you to identify and explain three ways that we would know that the economy is healthy.

You could explain that businesses do well, unemployment is low and people feel more confident when spending money when inflation is low.

Make sure that you are using keywords to make your answer more full.

Pause your video and have a go at this now.

I asked you to explain what a healthy economy looks like.

You might have included some of the following in your answer: "We can tell the economy is healthy if it's growing at a steady pace, meaning businesses are doing well and people have jobs.

When inflation is low, prices don't go up too fast, so people can still afford goods and services.

For example, in the late 2010s, Germany had strong growth and inflation was stable, making it a good time for people to spend and save.

Another sign of a healthy economy is when unemployment is low, which means most people can find work easily.

If inflation stays under control, wages can keep up with the rising prices, making life easier for people.

In the UK, after the 2008 recession, unemployment dropped and inflation remained steady, showing the economy was recovering.

A healthy economy can also be seen when people feel confident about spending and investing money.

When inflation is stable, it means prices aren't suddenly rising too much so people know what to expect." You might have spoken about some other things.

For example: a healthy economy often shows steady GDP growth.

This means the country is producing more goods and services.

If inflation is low, it helps to make sure that people's money keeps its value and doesn't lose purchasing power too quickly.

Another sign of a healthy economy is business growth, where companies are expanding, creating jobs and increasing investments.

If inflation stays stable, it helps businesses plan for the future, since they know costs won't suddenly rise.

In Germany, businesses grew in the 2010s and inflation remained low, creating a stable environment for both companies and consumers.

A healthy economy can also be seen when a country has balanced trade.

That means it's not overly dependent on imports or exports.

If inflation is under control, people and businesses can plan their budgets without worrying about prices changing too fast." Well done if you included some of those points in your answer.

Next, we're going to think about how the economy affects the UK Government.

Whether the economy is strong or weak affects not just the citizens living in the country, but also the Government.

Depending on the health of the economy, the Government has to set agendas and policies to try and stabilise the economy and keep inflation level.

The Government take advice from the Bank of England, depending on the economic health of the country, so this is something that might fluctuate a lot over a government's time in office.

How the economy is functioning affects the Government's decisions on lots of important financial affairs.

That might include: borrowing money and whether we can borrow money from different global institutions; how we spend money on things like public services; the interest rate that impacts our spending and our saving; the rate of taxes that we pay on our wages and through things like VAT; investments; pensions; paying off debt; and lending money to other countries; also providing services.

Let's put this into practise.

Answer the following questions in a short sentence.

Who does the UK Government take advice from about the economy? What are some examples of three different government decisions that are affected by the economy? Pause your video and do this now.

Let's check our answers.

In terms of who the UK Government takes advice from, you could have said the Bank of England.

Three decisions that the Government makes that are affected by the economy are: borrowing money, spending money, and the rate of taxes.

Well done if you got those right.

The economy has a large impact on the UK Government because it affects how much money that the Government earns and then consequently how much they can spend.

When the economy is strong, businesses make more profit, people earn more, and the Government collects more in taxes.

They use those taxes to pay for public services, like schools, hospitals, and roads.

However, if the economy is struggling, tax revenue drops.

That means the Government might have to borrow money or cut spending in order to balance the budget.

Inflation also plays a big role in how the economy affects the Government.

If prices rise too fast, the Government has to find ways to control inflation and balance economic growth.

For example, they may adjust the interest rate so they can balance the budget and stabilise the economy.

The actions of the Government are often dependent on what's happening in the economy, because it's going to have an effect not only on them but all citizens within the country.

If an economy is healthy, the Government actions might look like: increased taxes, increasing the amount of state pension, investing in new public services, for example, they might decide that's a good time to build a new school or a hospital; give public servants like teachers, council workers and nurses a pay rise, or pay off some of the national debt.

However, in a recession where the economy is less healthy, the Government might have to take different actions.

They might lower taxes, they might reduce the state pension, they might halt spending on public infrastructure projects, for example, that new school or hospital; they might stop any pay increases in the public sector, or they might have to borrow money from businesses or other governments to make sure they have enough to spend.

Izzy has asked, "Why would the Government lower taxes in a recession?" This is a really good question.

There are lots of reasons for this, including the fact that it might stimulate spending.

Lower taxes mean that people have more money to spend, that might boost demand for goods and services.

It might also encourage investments.

Reducing taxes can make it more attractive for businesses to invest, that is gonna consequently help the economy recover, it might also support employment.

If there are lower taxes, businesses will have more money to hire workers and avoid having to lay people off from their jobs.

That would help to reduce unemployment.

It also helps to boost confidence.

Lower taxes can give people and businesses confidence that will help them feel more secure, and that means that they might spend and invest more.

Let's do another check.

True or false? If an economy is healthy, the Government might lower taxes.

Pause your video and choose your answer.

Can you also have a think about why you've chosen that answer? The correct answer is false.

This is because the Government might increase taxes in a healthy economy to control inflation, this will reduce government debt, invest in public services, and save money for future economic challenges to keep the economy stable.

When in a recession, the UK Government may implement austerity measures as a way to control national debt and to stabilise the economy.

Austerity refers to government policies that are aimed at reducing public spending and budget deficits.

This often looks like cuts to services and welfare spending.

However, these policies are highly emotive.

That means that people have a big emotional response to them.

Often they're a factor used in political debate before an election.

This is because their impact is not felt equally across society, so therefore, people have big feelings towards these ideas.

Some people believe austerity is needed to reduce debt and stabilise the economy.

Others argue it unfairly affects poor people because those cuts often target welfare, public services and local governments.

The economic divide was a really important issue in the 2019 General Election.

Jeremy Corbyn, who was the leader of the opposition and the Labour Party at the time, opposed austerity, arguing that it deepens inequality within people in the UK.

Understanding who's affected during most periods of austerity is really important in evaluating whether these policies are fair and effective.

We have to balance up these ideas.

Let's have a go at this now.

I'd like you to arrange the following statements into columns, whether they are for or against austerity measures, and particularly whether we should use those during a recession.

Pause your video and have a go at this now.

Let's check which of these arguments are for and against austerity measures.

One argument for is that it leads to long-term financial stability.

One argument against is that cuts normally target disadvantaged groups.

An argument for is that it will ultimately reduce government debt in the long term, but an argument against is that it deepens inequality between people.

Whilst lots of government actions are affected by an economy, there are also actions that are less affected by the economy.

That's because they're based on laws, long-term commitments or non-financial factors.

So therefore, it's not only the economy that is having this impact.

Some of those things include: foreign policy and defence: decisions about international relations, military actions and national security are based on global events and political strategy rather than economic conditions.

Legal system and justice: the courts, law enforcement and legal decisions operate based on the law, not on the economy.

Elections and democracy: the timing of elections, voting rights and political decisions follow democratic rules, regardless of the economic conditions.

Monarchy and traditions: the Royal Family and national traditions continue, even during economic downturns.

Environmental laws and regulations: funding for green projects may change, but laws protecting the environment normally stay in place.

Let's do another check.

I'd like you to match the Government action with its connection.

Pause your video and have a go at this now.

Let's check our answers.

Foreign policy is linked to international relations.

The legal system is linked to law enforcement.

Elections are linked to voting rights, and the monarchy is related to national traditions.

Well done if you got those right.

The responsibilities of the Government in these different fields does continue no matter what happens to the economy.

Most government actions is strongly led by the UK economy.

Government action that is not led by it is still influenced by it.

For example, although elections will carry on regardless of whether the economy is stable, the decisions that are made by voters and parties are reliant on the economy because this is something that has a really big impact on people's day-to-day lives.

You might be more likely to choose a candidate who has economic policies that are going to benefit you.

For example: Rachel is going to practise her democratic right and vote in the general election during a time of economic unrest in the country.

She has lots of investments in savings and wants to vote for an MP who's interested in improving the economy and has financial experience.

Rachel looks at the different campaigns and chooses the candidate who fits her criteria the most.

This shows that although the election might not have a direct involvement with the financial sector, the economy has influenced Rachel's decision-making process.

The economy has influenced what parties are focused on when they're canvassing, trying to get people to vote for them.

Another example we can think about is the effect that it has on public sector workers, for example, junior doctors.

Maria went on strike last year due to pay and working conditions.

She is very concerned about the economy and how this affects her salary and working life.

Before the General Election of 2024, Maria and other doctors at the hospital discussed which parties were going to increase public sector pay in line with private sector pay and what their plans were for the economy of the country.

The information about the economy influenced who Maria chose to vote for during this election, based on her job.

Other examples that might show how the economy influenced government action are: crime rate increases: if the Government want to decrease crime during an economic recession, their actions may not be as timely, responsive, or detailed because they might not have the funds for additional staff or services, for example, hiring more police officers.

A global pandemic: the economy was crucial in buying equipment, protection and vaccinations during the COVID-19 pandemic, low income countries suffered as a result of an unstable economy.

That was because they didn't have equipment and resources.

There might be an impact on the creation of a new law.

New laws can be created regardless of the economy.

However, how quickly they're passed depends on available staffing and resources, that would happen within a strong economy.

Protecting the environment: Policies that protect the environment are still in place no matter what is going on in the economy; however, the conditions will affect them, for example, if inflation rises and spending decreases, funding for environment charities might be reduced.

A further example is transport.

The Government can't just cut all public services it provides when it goes into a recession.

It still needs to think about its citizens and the most important things that they will need.

Smaller services such as rural bus routes that don't run at a profit are sometimes cut in this circumstance.

Although the main responsibilities of the Government stay the same, the services that it provides might decline.

Jun said, "It would be awful if they cut our local bus routes because it would really affect the community." Sofia says, "In a weak economy, or just if the Government decide to spend the money on other things, it can happen.

Since some government budget cuts, I've had to get an earlier bus to school and arrive 45 minutes early." So we can see how everyday things that happen in our life can really be linked to what's happening in the Government and the wider economy.

Let's do another check.

If the Government actions aren't directly related to the economy, they are usually what by it? A: weakened, B: unaffected, or C: influenced? Pause your video and choose your answer now.

The correct answer was influenced.

Let's put this into practise.

I'd like you to write a summary of the role of the economy in government action.

In your summary, you should include: the actions that the Government takes in a healthy economy, the actions the Government takes when a country is in recession, and the actions the Government takes that are influenced by the economy.

Pause your video and have a go at this now.

I asked you to summarise the role of the economy in government action.

You might have included some of the following in your answer: "In a healthy economy, the Government collects more taxes because businesses and workers earn more, this allows them to invest in public services, reduce debt or even lower taxes to keep economic growth and inflation steady.

In a recession, the Government may lower taxes or increase spending on things like building new schools or hospitals to help people and boost the economy.

However, they might also cut some public services in order to save money.

They might borrow money to keep government services running whilst businesses and workers struggle.

The economy influences government decisions on taxes, spending and borrowing, depending on whether the country is doing well or not.

It also affects things like inflation, trade and job creation, which impact how the Government plans for the future.

Today, we have been thinking about whether the UK Government action is led by the economy.

We have learned that healthy economy has GDP growth, low unemployment, stable inflation, and strong business investment.

Whilst a weak economy can lead to higher unemployment and slower spending.

In a strong economy, the UK Government might collect more tax and invest more in public services.

Whilst in a recession, it may borrow money, lower taxes, or increase spending.

The Government aims to keep inflation low but positive.

Too high can cause price rises, too low, can slow growth.

Government areas like defence, law enforcement and elections are less affected by the economy, but it still influences decision-making processes within these areas.

That's the end of today's lesson.

Thank you for joining me.