5.2 Macroeconomics and Living Standards Flashcards
What is macroeconomics?
Branch of economics looking at economy as a whole
What does macroeconomics examine?
Overall performance of a country
- economic growth
- Unemployment rate
- Inflation
- Improvement in living standards
What do people gain from studying macroeconomics?
Predict and manage economy, improve wellbeing and prosperity of all people in a county.
What is economic activity?
Overall level of production + consumption of goods and services in economy over period of time
How does economic activity work?
- Production - high labour demand
- Employment - Payment, increase household income
- High income - spend more
- High spending - increase production.
What are material living standards?
Degree a citizen can access goods and services.
Dependant on income
Are material living standards measurable?
Yes
How are material living standards measured?
Gross Domestic Product (GDP) per capita, Gross National income per capita (GNI)
What are non-material living standards?
Wellbeing and quality of life
Are non-material living standards measureable?
Difficult to measure
How are non-material living standards measured?
Quality of physical and mental health, environmental quality, life expectancy, crime rates, etc.
What is inflation?
General increase in prices of goods and services in economy.
When the price of goods and services increase ___.
The purchasing power of your money decreases.
What are two negative consequences of inflation?
- Reduced purchasing power
- Wage-price spiral (people demand higher wages, cost of labour increases, decrease in living standards, request higher wages…)
What are the two main causes of inflation?
- excessive spending in the economy (more money than goods = high demand and higher prices)
- costs of production (materials cost more, then finished product costs more)
What is a policy used to decrease high inflation?
Increase interest rates.
Who is the Reserve Bank of Australia?
Central bank of Australia. Govt organisation, conducts ‘monetary policy’ to decrease inflation.
What is an interest rate?
Cost of borrowing money, or profit bank makes when you borrow money. Percentage of amount borrowed.
How does higher interest decrease inflation?
Causes people to spend less money, as the cost of borrowing money increases.
People pay back mortgage as rates increase, and have less money to spend.
How does high interest decrease inflation?
(list)
- Higher cost of borrowing
- Increased saving (receive high interest rate in savings)
- Increased mortgage payments
