EPF 5: How Businesses are Organized

By Sarah Hunderup


Terms to Know

Economic Indicator: a piece of economic data that is used to judge the overall economic status of a country

Gross Domestic Product (GDP): an economic indicator that looks at the value of all the goods and services in a country over a time period, usually a year

Consumer Price Index (CPI): an economic indicator that looks at the average weighter prices of a certain "basket of goods and services"

Unemployment Rate: an economic indicator that looks at the percentage of the labor force that is not employed but is trying to find employment

Inflation: the rate that general price levels of goods and services rise and the ability of purchasing to fall


Causes and Effects of Unemployment

  • Lack of Experience- when people are first trying to get a job, it is hard because people would rather have someone that has been working a lot rather than someone who has never worked
  • Economic Conditions- when companies are running low on money, they have to get rid of many workers so they can survive
  • Jobs Available- there are many people looking for jobs that can't get one because they don't fit the job that companies are hiring for
  • Performance Issues- if someone is late often or is not working efficiently, then the company will let that person go since they aren't helping the company


  • Lost Output- people that aren't working are wasted resources because the output isn't being maximized; that means that living standards and international competitiveness is lower than what it should be
  • Lost Tax Revenue: when people don't work, the government doesn't get money from income tax; with lower tax money, there is not money to improve healthcare or education, therefore lowering the productivity of a country
  • Costs of Unemployed Families- without money coming in, the family will not be able to get everything they need to thrive; kids will struggle in school for lack of resources, people will start to feel like they are not as good as the peope with money, fights happen about how to handle money, it makes poor living conditions
  • Hysteresis- the longer someone is unable to get a job, the more people won't hire him or her because they see that person as a potential risk to hire

Causes and Effects of Inflation

  • Push-Pull Inflation- the increased costs to make things results in higher prices
  • Demand-Pull Inflation- the demand for the goods and services exceeds the supply


  • Savers and Investors lose Money- people that made lots of money and have had it waiting for them to use is losing money because the money that they have now is not worth as much as it was before
  • Costs of Families- with money that is worth less, it is harder for families to buy things to help them thrive; the amount to buy things is increasing faster than people are making money
  • Debtors get Helped- the people that owe money can pay their debts off with money that is worth less

Causes and Effects of Reduced Economic Growth


  • Government- it spends more than they lend
  • Consumer Confidence- if the economy has high unemployment or inflation is possible, consumers will spend less
  • Declining House Prices- houses are a big deal to helping economic growth so when houses aren't selling, that reduces the economic growth
  • Saving- people who save more than they spend don't help the economy grow


  • Companies Growing- people can't grow companies with the money loss
  • Government Difficulty- it's hard for the government to repair finances because safety net program costs stay high and tax revenues stay low