Economists say economics is the study of scarcity. Thatās because resources, such as workers, land and raw materials, are limited – while the demand for them is infinite. Basically, we always want more.
So the textbook answer is an economy is a system for distributing scarce resources. And when we talk about ātheā economy, we usually mean the UKās economy.
In some countries, the government chooses what to produce, how much and for whom. In others, itās determined by what people want to buy, and how much businesses can provide ā supply and demand.
Whatās your role in the economy?
The economy can seem hard to pin down, but we all shape it through our choices. Youāre 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 toā¦
How can you tell if the economy is doing well or badly?
People use many expressions to describe the economy. They say itās healthy, thriving or in a good place. In bad times, itās weak, struggling and depressed. Perhaps it can feel hungover too?
Four things give you an idea of how the economy is doing:
- GDPĀ – or economic growth. This is a measure of all the goods and services produced in a country over a period of time, for example, a year. An increase means the economy is growing.
- InflationĀ – the pace at which prices in shops rise. The government considers anything above or below 2% undesirable.
- Unemployment ā how many people want to work but canāt find a job. The fewer, the better.
- Inequality ā how a countryās wealth and prosperity is distributed. Economists tend to see high inequality as a sign of an āunhealthyā economy.
Whatās the Bank of Englandās role?
Our job is to make sure inflation is around 2%. We do this mainly by influencingĀ interest ratesĀ (the amount you pay for a loan or how much you get 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 cyber-attacks on banks to the size of peopleās mortgages. Learn more aboutĀ what we do.