aos 1 Flashcards
macroeconomics
consider performance of economy as a whole
economic activity
prod, income expenditure that takes place across whole economy
income
total incomes that have been earned by those who contribute to the production of G+S
expenditure
total spending on g+s
production
total value of g+s produced in eco
leakages
(STI)
removal of money from eco
Savings: money saved rather than spent
Taxes: money paid to gov in form of taxes
Imports: money spent on g+s that have been produced o/seas
injections
addition of money
investment demand: spending on capital items (machinery/factory)
govt spending: spending by govt on g+s
export demand: money spent on aust g+s by o/seas residents
leakage vs injection
leak > inject -> down eco act b/c high $ leaving than enter e.g c’er saving up b/c c’er predict difficult times -> less $ available to be spent on g+s -> less demand for g+s
inject > leak -> up eco act b/c more $ enter than leak out e.g high invest during mining boom -> more employ + consume
trade offs:
all possible things we give up when decisions made about scarce resources to gain s’thing else
arise b/c resources = insufficient ti allow us to have all
p’ing + c’ing more g+s -> high material L.S sometimes sacrificing/foregoing aspects to support NMLS
aggregate demand
total expenditure on g+s produced in the economy over a period of time
AD=C+I+G+(X-M)
consumption expenditure
(C)
60% of AD
total value of all expenditures on individuals + collective consumption by resident households + non-profit institutions serving households
> expenditure on c’er durable
expenditure on food
expenditure on white goods
expenditure on single use products
expenditure on services
factors impacting (C)
> disp y
c’er confidence
interest rates
rate of pop growth
budgetary policies affecting taxes + govt spending
Private Investment Expenditure (I)
15-20%
purchase of new equip + plant, buildings + vehicles -> expenditure on plant, buildings vehicles to expand productive capacity
factors impacting (I)
> bus conf
interest rates
company tax rates
global economic conditions
Government expenditure (G)
20%
includes all demand for g+s by federal state + legal govts
G1: govt current (consumption) expenditure -> spending on civilian g+s, military spending,health + edu, defence
G2: govt investment expenditure -> spending on capital goods like infrastructure + buildings
factors impacting (G)
> level of unemployment
level of inflation
speed of pop growth
economic cycle
Net Exports (X-M)
x= expenditure on domestically produced goods by foreigners
m=expenditure on foreign produced goods by members on an eco
factors impacting (X)
> o/seas conflict
exchange rates
o/seas eco conditions
natural disasters + severe weather conditions
factors impacting (M)
> trends in local eco conditions
our inflation rate
c’er + bus confidence levels
o/seas conflict
exchange rates
AD curve shift
left = ↓ conf/↓o/seas eco act/↓govt spending/↑ AUD/ ↑I.R/ ↑ tax
right = ↑ conf/↑ o/seas eco act/ ↑ govt spending/ ↓ AUD/↓ I.R/↓ tax
factors influencing AD
changes in general level of prices (inflation)
impacts purchasing power of eco agents -> ↑ inflation -> ↑$ -> less p.p ->↓ c
impacts international competitiveness = inflation -> ↓ aust international comp -> ↓ X ↑ I
factors influencing AD
disposable income (gross income - income tax)
impacts p.p of c’er -> ↑ in real disp y -> ↑ p.p -> ↑ C
factors influencing AD
interest rates
impacts portion of disp y available for consumption (variable rate loans) -> ↓ I.R -> ↓ repayments on existing loans -> ↑ prop of disp y available -> ↑ C
impacts cash available to business-> cash flow effect (variable rat eloans0 -> ↑ cash available for I
low I.R -> ↑ attractive to borrow cash -> ↑ C+I
factors influencing AD
Consumer confidence
general optimism/pessimism abt future state of eco + job prospects
↑conf -> ↑ C
c’er sentiment
factors influencing AD
Business confidence
general optimism/pessimism abt future state of eco + ability to generate a profit
↑ conf -> ↑ I
business sentiment
factors influencing AD
exchange rates
impact int comp - depreciate AUD -> ↑ int comp -> ↑ X
Factors influencing AD
levels of economic growth o/seas
↑ eco grow in major trading partners -> ↑ spend on X
Factors influencing AD
inflation
interest rates
disposable income
consumer confidence
business confidence
exchange rates
levels of economic growth o/seas
aggregate supply
represents total volume of g+s that all suppliers are willing + able to produce
factors that affect AS
inflation
quality of factors of production
quantity of factors of production
cost of production
technological change
productivity growth
exchange rates
climatic conditions
economic growth
rate at which economic activity grows overtime
determined by changes in real level of prodn from one year to another measured by GDP
reported in quarterly series called national accounts using GDP as statistical measure of prodn
GDP + GDP per capita
final value of g+s produced during specific period of time
gross domestic product
Per capita = GDP divided by size of pop
GDP = C+I+G+(X-M)
real value of production/Real GDP
quantities produced = valued @ prices in bade year rather than current prices
ABS take into account + convert ‘$’ figure into real figure
nominal GDP
measures country’s gross domestic product using current prices, without adjusting for inflation
living standards + eco growth
↑ prod income + expenditure
↑ material l.s = ↑ access to g+s -> ↑ income to purchase (as long as wages grow faster than $ of g/s) + ↑ prod -> ↑ g+s
↑ n.m.l.s ↑ access to health care + edu/ ↑ quality of g+s? decrease rate of crime/ Decrease stress on money
limitations of GDP
- excludes most non-marketed production (housework)
- uses inaccurate ‘guestimations’ of some type of production
- fails to take into account negative externalities that ↓ n.m.l.s
- x measure changes in quality of g+s from 1 quarter to next
- fails to take into account way g+s + income = distrib + shared
alternate measures of national growth / L.S
MAP -> focus on 3 general indicators: society, eco, enviro
GPI -> use GDP as base + add or subtract from it
HDI -> composite stat of life expect, edu + per capita income indicators -> used to rank countries into 4 tiers of human develop
GNH -> composite index made of several objective + subjective indicators
Measures of Australia’s Progress (MAP)
collection of measures published periodically by ABS
4 main categories = society, economy, governance, environment
Genuine Progress Indicator (GPI)
makes neg + pos adjust on GDP values to better reflect good/bad effects of some types of eco act on society’s m+nm well being
includes:
> estimation of value of unprod community work/home duties + making deduction for income inequalities + reliance on debt to finance out consumption + way of life
> making deductions for eniro destroy or some externalities inc loss of leisure time to work, increase crime rates, fam break-ups
Problem: accurately estimating $ value for each adjust
Human Development Index (HDI)
combined range of eco + social indicators -> indicate eco develop + wellbeing h/w x incorp enviro considerations
1=high 0 = low
>indicator of material L.S = GDP per capita/ h/w figure adjust to remove variation in actual p.p of $ in dif countries + adjust low for inequality in distrib of g+s
> indicator of social/n.m.l.s = life expectancy (calc @birth + expressed in yrs)/ edu standard (literacy rates)
Gross National Happiness (GNH)
composites index -> several indicators: GDP per capita/ social support/health + life expectancy/ freedom to make life choices/ generosity/ trust
> based of national national surveys
2011 -> UN invite member nations to measure happiness
world happiness report
Budgetary policy
govt stimulate eco by spending -> jobs -> income -> ↑ AD -> ↑ GDP
comes at cost of rising prices
deficit (expend>receipt) -> ↑ eco grow (expand)
surplus (expend<receipt) ->↓ eco grow (contract)
balance (expend=receipts)
monetary policy
↑ IR -> x expenditure + reward saving -> ↓ eco growth (contract)
↓ IR -> expenditure + discourage saving -> ↑ eco growth (expand)
stimulate eco: gov low IR @ cost of ↑ prices
economic prosperity
having high incomes per person + being able to consumer/purchase more g+s now + into future
also mean having job + avoiding inflation, since these affect our p.p + income
poor countries/rich countries -> strong eco grow = usually seen as main way of improving eco prosperity
if maximise current eco prosperity -> depletion for future gen
environmental sustainability
preservation of our natural enviro into future
ensure practices x contrib to enviro harm + erosion of N resources
way we pursued grow -> impact on enviro + jeapordise future grow
sustainable eco grow
gov + bus + indiv are now more understanding of need to pursue eco grow
method of expanding eco prodn levels to meet needs for g+s of pop w/o undermining ability of future gen to meet own needs
enviro costs of eco growth
accelerate enviro probelms:
CC
deplete natural resources= non-renewable -> x replenished
deterioration of common access to g+s = deprive others + w/o safeguards -> pollution
eco cost of eco growth
structural unemployment: fall in cyclical unemplo/ structural change -> firms change prodn methods around cutting costs b/c comp -> job loss
accelerate inflation: ↑ grown -> ↑spending/AD + eco close to productive capacity -> ↑ prices b/c shortages
limit future grow: ↓ resources -> ↓ capacity to enjoy prosperity
enviro policies + dif policy approaches
any govt policy that is designed to protect aust physical + natural enviro from damage/ depletion
regulation + legislation
Market based approaches
direct action
Regulation + legislation
involves use of Environmental Protection and Biodiversity Conservation Act (1990) + laws to protect flora + fauna
> provide guidelines to access eviro impact of develop
if impact found applications of approval must be made
prove benefits outweigh costs -> eviro impact statement
cost may need to be covered for in other ways
market based approaches
govts providing bus + c’ers w/ financial incentives to produce/purchase g+s which take into account enviro impact
can also involve subsidies/rebates to support enviro sustainability or taxes/fines to penalise
> enviro sust options get cheaper + ↓$
use price mechanism + relative prices to encourage c’er + bus to choose options w/ better enviro outcomes
market based approaches
impact on AS
goal = force firms + c’ers to internalise external costs stemming from burning fossil fuels for energy
ST= supply can be hard to change + take take to develop + implement new tech t/f carbon $↓ rate of eco grow, up c.o.p, ↓AS + grow
LT= mitigate neg effects of cc -> protect resource + infrastructure from cc -> maintain AS = aus = sseg
Direct Action
govts investing directly in projects to achieve specific enviro outcomes
provide funding to speed up development of enviro friendly projects + sustainable prodn methods
