1D Flashcards
What is the trade cycle (refer to graph)?
the recurring pattern of fluctuations in economic activity within an economy, characterized by periods of expansion (growth), peak (highest point), contraction (decline), and trough (lowest point) over time
What is the RBA and Govt doing during the trade cycle?
They’re applying both; fiscal and monetary policies to maintain controlled and stable economic grwoth.
List the curve and what happens during the trade cycle.
economy booms first, expansion in GDP, low unemployment, high inflation, THEN DOWNSWING
then trough(recession) - contraction in GDP, high unemployment and low inflation, THEN UPSWING
another boom. downswing
another trough (recession)
then upswing to desired economic activity
2 OF EACH CURVES
What is paradox of thrift (understand)?
The Paradox of Thrift explains that while saving is beneficial for individuals, if everyone saves more during economic uncertainty, overall spending decreases. This leads to lower consumption (C ↓) and investment (I ↓), causing GDP and output to fall. As businesses earn less, unemployment rises (↑), incomes drop (↓), and total savings (S ↓) ultimately decrease, despite the initial intent to save more. This paradox highlights how excessive saving can slow economic growth and worsen recessions, which is why governments often use stimulus measures to encourage spending during downturns.
What are the 5 economic objectives?
- Sustainable economic growth
- price stability
- full employment
- external stability
- High standard of living
What is the eco objective of sustainable eco growth?
Sustainable economic growth is the steady increase in goods and services (GDP) without long-term harm. The 2019 Renewable Energy Investment Subsidy ($29 billion) supported businesses investing in clean energy. Subsidies are government financial incentives to encourage investment in key sectors. Effect: Boosts jobs and innovation but, if unsustainable, can lower consumer confidence.
What is the eco objective of price stability?
Price stability ensures that inflation remains low and predictable, preventing large fluctuations in prices. Government excises (taxes on goods like fuel, tobacco, and alcohol) help regulate consumption but can also raise prices, contributing to inflation. Example: Fuel excises add to already high fuel prices, which are also affected by import costs, competition, and retail markups. Effect: Higher excises can stabilize demand but may burden consumers with increased living costs.
What’s the eco objective of full employment?
The economic objective of unemployment is to achieve full employment, which means having a low unemployment rate while avoiding excessive inflation (4-5% in aus).
Why can’t we ever reach FULL EMPLOYMENT (WHAT ARE THE 3 DIFFERENT TYPES OF UNEMPLOYMENT)?
Seasonal- happens when people are unemployed at certain times of the year because of seasonal job patterns - ski instructers, fruit pickers, christmas employment contracts
transitional - between jobs
structural - technological advancements, industry shifts, geographical location - ai - change in the nature of work
changes in the economy or tech that make certain skills outdated
What is the eco objective of external balance?
its an economic policy that creates a balance between imports and exports throughout the economy. the aim is to control currency value and therefore influence demand for their exports and their own purchasing power. Varies from country to county.
What’s a trade balance with an e.g. of a country?
when imports = exports - Australia rely on exports for income and imports for essential materials.
Trade balance prevents economic instability caused by too many imports (deficit) or too many exports (surplus).
what’s a trade deficit with an e.g. of a country FOR FISCAL?
imports > exports - USA - A strong currency & high demand make imports attractive, leading to a trade deficit. Some countries need imports for essential resources (fuel, tech, machinery). A trade deficit is not always bad—if imports fuel economic growth, it can still benefit the economy in the long run.
what’s a trade surplus with an e.g. of a country FOR FISCAL?
exports > imports - China - A trade surplus happens when exports exceed imports, usually due to strong industries, high savings, and competitive pricing.
Countries with strong exports (Germany, China, Japan) benefit from stable income and job creation.
However, too much surplus can create over-reliance on foreign demand, which can hurt the economy if global markets slow down.
what is the eco objective of high standard of living?
economic policies should aim to improve:
1. health standards
2. education and literacy
3. environmental sustainability
4. equitable wealth distribution
What are conflicting objectives with major e.g.?
Conflicting objectives occur when achieving one economic goal makes it harder to achieve another. For example, a carbon tax may improve environmental and living standards but can lead to higher prices, affecting price stability.
What is the monetary policy?
Any policy that influences the interest rates with the goal of stimulating or reducing aggregate demand
What is fiscal policy?
(also budgetary policy) Govt expenditure and revenue (TAX) to tegulate aggregate level of eco activity and influence the size of the circular flow of income.
DEFINE AGGREGATE
NOTES recite:
THINK ABOUT BORROWING WITH LOGIC
Lower interest rates encourage spending, investment, and borrowing, as it’s cheaper to take loans.
Higher interest rates encourage saving and less borrowing, as the cost of loans increases.
What is the use of the fiscal and monetary policies?
To minimise fluctuations within the trade cycle, both policies are neccessary to overcome these fluctuations.
