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VCE Economics > 2.1 Economic Issues and Living Standards > Flashcards

2.1 Economic Issues and Living Standards Flashcards

Unit 2 AOS1

1
Q

Economic Activity

A

It involves the production, income, and expenditure of goods and services at all levels within an economy.

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2
Q

Economic Growth

A

Economic growth in an economy is the rate at which economic activity increases over time.

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3
Q

Employment

A

When business in an economy produces goods and services businesses will increase their demand for labour resources, increasing employment in the economy.

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4
Q

Income

A

More employment in the economy means labour resources will receive payment for their work, leading to an increase in household income.

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5
Q

Consumption

A

With a greater amount of household income, people are more able to spend their income consuming goods and services.

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6
Q

Production

A

An increase in spending means businesses will increase production, thus closing off the cycle.

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7
Q

The level of economic activity

A

The volume of production, income, employment, and expenditure generated over a period of time. This is modelled in the circular flow of income.

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8
Q

Total Output = Total Income = Total Expenditure

A

Gross Domestic Product (GDP) = Gross National Income (GNI) = Aggregate Demand

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9
Q

Material living standards

A

The degree to which a citizen can access goods and services. Dependent on income, tangible, and quantifiable. Measured by GDP per capita or GNI per capita.

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10
Q

Non-material living standards

A

Referring to one’s wellbeing and quality of life. Less dependent on income and more so related to capacity to socially engage and reduce suffering. Qualitative and intangible. Measures quality of physical and mental health, environment quality, life expectancy, crime/literacy rates.

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11
Q

What causes economic growth

A

Occurs when injections (I + G + X) are greater than leakages ( S +T +M) from the economy. Increase in the size of a country’s output over a period. Measured by Real Gross Domestic Product (Real GDP).

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12
Q

Real GDP

A

The final market value of all goods and services produced in an economy over a given period of time. Designed to dismiss the effect of inflation.

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13
Q

Real GDP per capita

A

Real GDP divided by the population. It’s a measure of each citizen’s average income and is an indicator of material living standards.

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14
Q

Nominal GDP

A

Includes value of all final goods and services and excludes intermediate goods (used to produce final goods and services) because they’re included in the value of final goods and services. Removes the effects of inflation from nominal value of GDP.

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15
Q

The business cycle

A

The trend in economic activity and output over time.

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16
Q

Results of economic expansion

A

Increased production, wages, consumer spending, prices, interest rates (RBA), economic growth. There is a decrease in unemployment.

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17
Q

Results of economic contraction

A

Decreased production, prices, wages, consumer spending. Unemployment increases.

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18
Q

Recession

A

Occurs when the economy contracts for two consecutive quarters.

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19
Q

Unemployment

A

The section of the labour force actively looking for work but are unable to find it.

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20
Q

Inflation

A

A sustained increase in the general level of prices in an economy over a period of time.

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21
Q

Government goals

A

Strong and sustainable economic growth, full employment, and low and stable inflation.

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22
Q

Strong and sustainable economic growth

A

Achieve highest growth rate possible, consistent with strong employment growth and without unacceptable inflationary, external, or environmental pressures. 3-3.5% Real GDP growth per year.

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23
Q

Full employment

A

With the government’s economic growth objective reached, cyclical unemployment doesn’t exist in the economy. Lowest unemployment rate possible without triggering inflation. Ideal rate by NAIRU is targeted at 4-4.5%.

24
Q

Low and stable inflation

A

Australia’s inflation target is to keep annual consumer price inflation between 2-3% on average per year.

25
Q

Leading indicators

A

Early warning sign that suggests economic activity is either at or approaching the peak phase of the business cycle. Forward looking indicator predicting future trends in economic activity. eg. Consumer confidence index and business sentiment index, surveys to measure future spending intentions.

26
Q

Coincident indicators

A

Provides indication of what’s happening in the economy during any particular phase of the business cycle. Suggest current state of economic activity. eg. Sales volume, hours worked, business inventory levels, interest rates, exchange rates.

27
Q

Lagging indicators

A

Reflects past economic activity and are typically backwards looking due to time lag between event occurrence and data collection and analysis. eg. GDP real, Gross National Income (GNI), Unemployment rate, inflation rate, average weekly earnings.

28
Q

Aggregate demand

A

Total expenditure on all goods and services produced in an economy in a given period of time at a given price level, ceteris paribus. C+I+G+(X-M)=AD

29
Q

Aggregate demand curve

A

An increase in aggregate demand causes the curve to shift right whilst a decrease in aggregate demand causes the curve to shift left.

30
Q

Factors of AD: Disposable Income

A

A household’s income after tax deduction by the government.

31
Q

Factors of AD: Consumer Confidence

A

Statistical measure of level of optimism households have about their future financial situation including beliefs about job security, the future state of the economy, and the competence of the government.

32
Q

Factors of AD: Interest Rates

A

The cost of borrowing money, expressed as a percentage. Australian interest rates are controlled by the Reserve Bank Australia (RBA).

33
Q

Factors of AD: Business Confidence

A

A measure of degree of optimism among firms in economy about the future performance of firms and the economy, and therefore future profit levels.

34
Q

Factors of AD: Economic Growth Overseas

A

The Real GDP or output of one of Australia’s major trading partners.

35
Q

Factors of AD: Exchange Rates

A

The rate at which one currency will be exchanged for another.

36
Q

Aggregate Supply

A

Represents the total volume of goods and services that all firms across the economy have produced and supplied over a given period of time at a particular price level (measured using GDP and equal to AD).
Also a measure of the willingness and ability of an economy to make available G&S to meet AD - why AS is also referred to as a nation’s productive capacity.

37
Q

Market vs Aggregate

A

Market demand/supply refers to specific goods or services whereas aggregate demand/supply is economy wide and refers to all goods and services.

38
Q

Productive capacity

A

The potential output of an economy or the real value of GDP that will occur when the economy produces at its maximum level possible.

39
Q

Factors of AS: Changes in costs of production

A

Any costs incurred by firms associated with supply. Includes the cost of resources (factors of production) and government taxes less subsidies.

40
Q

Factors of AS: Changes in quantity of factors of production

A

Changes in the amount of available factors of production. Impacts the ability of firms to supply.

40
Q

Factors of AS: Changes in quality of factors of production

A

Changes in the features and functions of FoPs which lead to changes in productivity (output/input).

41
Q

Costs of economic growth

A

Pollution, destruction of environment and ecosystems, depletion of non-renewable resources, and health impacts (pollution, traffic congestion, stress/anxiety = fall in productivity)

42
Q

Inter temporal efficiency

A

Balancing resources in the present with the need for resources in the future (non-renewable)

43
Q

Negative externalities

A

Costs on 3rd party not included in the direct economic transaction. Parties: 1st - producer, 2nd - consumer, 3rd - not included

44
Q

Common access resources

A

Shared resources that have existed for most of human history and are communal. No private owner or system to manage the use of resources.

45
Q

Tragedy of the commons

A

Overuse of common access resources creates problems with environmental sustainability. Short vs long term gain, self vs collective interest
Rising material consumption of goods and services can cause excessive economic growth.

46
Q

Affluenza

A

Materialism and consumerism can undermine personal wellbeing, erode social connection, contribute to inequality, and damage the environment

47
Q

Widening the inequality

A

Increased economic growth generates income which isn’t distributed evenly between citizens. Govt. must transfer and redistribute wealth to increase equality.

48
Q

Gini Coefficient

A

Quantify the level of income distribution. 1 = high inequality and 0 = equal

49
Q

Limitations of Real GDP

A

Excludes non-market goods, too difficult to attain accurate values (e.g. home-based production, black market, charitable activities).
Doesn’t measure non-material living standards and change in quality of goods and services.
Doesn’t consider the existing level of inequality, assumes equality.

50
Q

Economic indicators

A

GDP per capita, HDI, GPI

51
Q

GDP per Capita

A

Measures income per capita, provides indication of material living standards. However income is not evenly distributed, purchasing power isn’t accurately measured, excludes non-marketed goods and services.

52
Q

HDI

A

Human development index. Comprises of GNI per capita, life expectancy at birth, and mean + expected years of schooling. Doesn’t measure extent of non-material living standards.

53
Q

GPI

A

Genuine progress indicator. Includes household indicator, indicates national wellbeing, considers a combination of economic, environmental, and social indicators to create a picture of the overall progress of a country or state.

54
Q

Common access resource characteristics

A

Non-excludable consumption (no price or private ownership). Rivalrous; once consumed, it is unavailable for others to consume (exhaustible/depletable).

VCE Economics (6 decks)

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