3.2 economic growth in economy Flashcards
what is GDP
Primary measure of economic growth used in Australia
GDP measures the total value of production of goods and services in an economy over a period of time
what is consumption
The use of goods and services by consumer spending
An increase in consumer spending per head of population is regarded as a sign of economic progress
what are limitations of GDP
Does not take into account
- illegal work (‘cash in hand’ work)
- unpaid work (volunteer work)
- reductions of quality of life and losses through natural disasters
why do governments intervene
To ensure the most efficient and productive use of resources
To optimise the use of our economic resources (maximise their benefit)
To establish laws and infrastructure to ensure the economy operates efficiently and effectively
To establish and maintain basic living standards
To redistribute income and avoid huge differences in wealth
To balance competing economic and social interests
e.g. economic growth vs. environmental sustainability.
How does building new infrastructure boost the economy
Promotes job opportunities as it improves the access to workplaces. The improved train network will assist people who can’t afford a car and the ongoing costs of a car or for people who prefer using public transport).
Improves the transportation of goods and services. Resources are arriving on time, which boosts productivity.
Provides jobs to construction workers, and for long periods of time.
what is an interest rate
Interest rates can be:
- The cost of borrowing money.
- The money received for depositing money in a savings account.
During the last 16 months interest rates in Australia have been increasing (good for savers, bad for borrowers)
What is pro and con of inflation
Pro of inflation: Moderate inflation can encourage spending and investment. When prices rise gradually, consumers are motivated to buy now rather than later, which can stimulate economic growth. It can also make it easier for businesses to increase wages and profits over time.
Con of inflation: High inflation erodes purchasing power, meaning people can buy less with the same amount of money. This can hurt those on fixed incomes or savings, leading to a decrease in their standard of living. It can also cause uncertainty in the economy, making long-term planning more difficult.
