A level and O level ECONOMICS
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Decrease in Resources and Government Economic Aims
Analyse the effect of a decrease in resources on government economic aims.
Macroeconomic Factors and Policies
Frequently asked question
Clearly state the research question or objective of your essay.
A decrease in resources can have significant effects on government economic aims. Here is an analysis of some of the potential consequences:
➡️1. Impact on economic growth: With fewer resources available, it becomes more challenging to achieve economic growth. Resources, such as labor, capital, and natural resources, are essential inputs for the production of goods and services. A decrease in resources means there are fewer factors of production available, which can lead to a decline in output or slower growth rates.
➡️2. Increase in production costs: A decrease in resources may result in higher production costs. When the availability of resources declines, there may be a shortage of raw materials or other inputs, leading to a decrease in supply. If supply falls more than demand, it can lead to cost-push inflation, where the prices of goods and services increase due to higher production costs.
➡️3. Impact of natural disasters: Natural disasters can severely disrupt resources, such as agricultural land, infrastructure, and factories. This can lead to cost-push inflation as production costs rise due to damaged infrastructure or increased import dependency for goods like food. Additionally, natural disasters may result in unemployment and increased government expenditure, as funds are needed for relief and reconstruction efforts.
➡️4. Current account deficit: A decrease in resources can impact a country's trade balance and lead to a larger current account deficit. For example, if exports decline due to a decrease in resources, while imports, such as food or essential raw materials, have to be increased, it can result in a larger deficit in the current account. This can have implications for the country's balance of payments and overall economic stability.
➡️5. Employment effects: A decrease in resources, particularly due to destruction or loss of factories, can have a negative impact on employment opportunities. If factories are destroyed, it can lead to a reduction in employment opportunities and an increase in unemployment. However, the process of rebuilding factories may require additional workers, potentially creating new employment opportunities in the future.
In summary, a decrease in resources can pose significant challenges for governments in achieving their economic aims. It can hinder economic growth, increase production costs, lead to inflationary pressures, disrupt trade balances, and affect employment opportunities. Governments need to carefully manage and allocate the available resources efficiently, while also considering strategies to mitigate the negative effects of resource scarcity, such as promoting resource conservation, investing in alternative resources, and implementing policies to support economic resilience and recovery.
- Definition of economic growth
- Importance of resources in achieving economic growth
II. Fewer resources and economic growth
- Explanation of how fewer resources can make it more difficult to achieve economic growth
- Impact on factors of production and output
III. Increased costs of production
- Explanation of how fewer resources may increase costs of production
- Impact on supply and demand, and cost-push inflation
IV. Natural disasters and government expenditure
- Explanation of how natural disasters can lead to cost-push inflation and loss of employment
- Impact of government expenditure exceeding government income
V. Current account deficit
- Explanation of how fewer resources may lead to a larger current account deficit
- Impact on exports and imports
VI. Unemployment and rebuilding
- Explanation of how destruction of factories may reduce unemployment opportunities
- Impact on unemployment and need for workers to rebuild factories
- Summary of key points
- Importance of managing resources for economic growth.
• Fewer resources will make it more difficult to achieve economic growth - there will be fewer factors of production to produce goods and services - output may fall or rise more slowly -.
• Fewer resources may increase costs of production - supply may fall by more than demand/there may be a shortage of e.g. raw materials - cost-push inflation may occur -.
• Natural disasters - can lead to cost push inflation - loss of employment - government expenditure exceeding government income -
• The current account may move into a deficit/larger deficit - as exports may decline - while e.g. food may have to be imported -.
• Destruction of factories may reduce unemployment opportunities - which may increase unemployment - but more workers may be needed to e.g. rebuild factories -.