5 steps to understand the economy and its impact on society

By Special Guest
Jessica Vainer

News articles and TV shows often reference the economy – we hear the word frequently used. It appears to be this all-encompassing "thing" that has a large impact on our everyday lives. But how does "economy" actually affect society? How does economic behavior change how we live and how countries function? If you have an economic background, you should have keen insight into this subject.

 
For those who are unsure, we have listed how behavioral economics impacts society and what this could mean for you and your family. Firstly, the economy is defined as:

“the state of a country or region in terms of the production and consumption of goods and services and the supply of money.”

Essentially, it's a country or region's ability to produce and generate money. Read on to find out how varying economic conditions affect society:

1. Economic growth affects government policy and spending
 
First and foremost, the economy affects how a government acts. Economic growth stimulates business and spending. Increased exports and imports lead to greater income from business taxes. In short, governments have an improved cash flow. This can then lead to government spending. Essentially, everyone benefits as governments can push money into processes such as health services.

On the flip side, in times of economic recession, government spending is often reduced. This is so that any deficits can be removed. As a result, government services can often suffer and fall into disrepair. Health care, road repairs, and public transport, for example, could stagnate. The country or region can become neglected and quality of life can decline.      

2. This can then affect public infrastructure and services
As mentioned above, the economy has a direct impact on public infrastructure and services. During an economic recession, spending is reduced for businesses, governments, and the general public. Public infrastructure and services are often the first things to be hit including the following:

- Transport
- Healthcare
- General Maintenance

Public transport such as buses, trains, and trams could experience reduced services. Furthermore, government and private businesses may not spend as much on maintenance, renovations, and new vehicles. In the same instance, healthcare often stagnates. The public may experience increased waiting times for operations and basic medical treatment.

Aside from this, general maintenance could decrease – this could lead to public facilities falling into disrepair or the conditions of roads deteriorating, for example. In contrast, economic growth does the reverse – transport, healthcare, and maintenance often receive a boost and increased investment.   

3. Cost of living will also fluctuate

For the general public, the main impact is the cost of living. The economy has a direct impact on our spending ability. An economic recession generally leads to an increased cost of living. You would think that the reverse would happen – surely businesses would reduce their prices to improve sales?
 
This is not the case. During a recession, businesses often have to increase their prices to make up for shortfalls in sales and turnover. This has a snowball effect and invariably makes conditions worse. Prices can become so high that hyperinflation can occur. This is where prices for simple goods are ridiculous prices - $10,000 for a loaf of bread, for example. The countries currency is also generally affected during a recession, which contributes to inflation of prices.

During periods of prosperity, the cost of living either maintains at a constant or improves slightly. This is because prices rarely change, but also wages can increase as businesses make improved profits.



4. Whilst the value of currency also fluctuates
As mentioned above, the currency is directly affected by economic change. A strong economy results in a strong currency. Alternatively, a weak economy results in a weak currency. What does this actually mean? It means that your national currency has less or more buying power on the international market.

For example, during a recession in the States, the value of the USD could drop. This means that your USD can buy less when trading with international currencies. For business, this impacts import and export processes and profitability. For the general public, this affects things such as international purchases – travel money, for example.  

5. This all results in different quality of life conditions
All of the above have a direct impact on your quality of life. Students, for example, may have to look for free essays or use a plagiarism checker for free. Using sites such to help with schoolwork could be a necessity in times of economic recession. Moreover, obtaining essays for free may help reduce the burden on parents greatly.
 
Moreover, the economy has a direct impact on a family’s disposable income and quality of life. During a recession, quality of life can decline – families may not have enough disposable income to afford luxury items or even basic necessities in some instances. Alternatively, during economic growth, quality of life improves. Life becomes easier and families can afford luxuries such as holidays and new electronics.

We hope you have found this article beneficial. If you see news articles discussing the economy you should now have a greater understanding of what this means – the ramifications should be clear. Moreover, you should know how this could potentially impact your own life. Essentially, a poor economy leads to a lesser quality of life and worse conditions throughout the country. It is during times of economic growth that we prosper and enjoy an easier existence.