AOS 2- Domestic economic goals Flashcards
Living standards
The aggregate welfare of people in a country like Australia, made up of both material factors (such as access to goods and services) and non-material factors (such as quality of life)
Material Vs nonmaterial living standards
Material+ economic wellbeing–> quantity of tangible/physical G/S
Nonmaterial= Quality aspects of a persons daily existence
Factors effecting living standards
PEACLL
–> access to g/s
–>environment quality
–> physical and mental health
–>life expectancy
–> crime rate
–>literacy rates
Reasons to pursue economic growth
One growth in real income. Two Lowering in the unemployment rate.
Three. Increase ability of governments to provide essential services and avoid rising levels of deaths.
optimal rate of economic growth
3 to 3.5% over an economic cycle.
consequences of not achieving SSEG
Is the low 3% growth in real income is too low. The employment rate will be too high. The government will need to run a budget deficit in order to provide essential services without taxpayers revenue.
Is above 3.5% this can create inflationary pressures external pressures or environmental pressures
economic activity
GDP= C+I+G+(X-M).
GNE=C+I+G
SSEG
The governments goal for strong and sustainable economic growth is to achieve the highest growth rate possible real GDP of 3 to 3.5%, consistent with strong employment growth but without running into unacceptable inflationary external and/or environmental pressures
GDP growth
GDP2-GDP1/GDP1
employed
When someone is 15 years of age and over and working more than one hour a week in return for some form of remuneration
unemployed
When someone is over 15 without work or working for less than one hour per week and actively looking for more work.
hidden unemployment
Unemployed not included in the calculation of our employment as I have given up looking for wor
under/disguised employment
Underemployed are individuals who have a job however they would prefer to be working more hours and therefore are unemployed to an extent
long term unemployment
Being unemployed for more than 12 months
NAIRU
Non accelerating inflationary rate of unemployment –> 4-4.5%
Types of unemployment
Structural unemployment: the skills of the unemployed do not match the skills required in the economy
Seasonal unemployment where a person is unemployed because their skills are only demanded during certain times of the year
Frictional unemployment where a person is unemployed for a period of time while they are moving from one job to another
Hard-core unemployment where a person is unemployed due to mental physical or other characteristics that prevent them from receiving a job offer
Cyclical unemployment unemployment occurs when the economy is not operating at its full capacity due to ad deficiencies
consequences of unemployment
Loss of GDP, loss of tax revenue, greater income inequality, reduction in living standards.
goal of low inflation
Goal of low inflation is to achieve a sustained increase in the general level of prices of between 2 to 3% on average over the medium-term a.k.a. priced stability
inflation
PI2-PI1/PI1
demand inflation vs cost inflation
Demand inflation is inflation caused by changes factors that increase or decrease aggregate demand. Cost inflation is inflation cause by changes in factors that impact on accurate supply or supply-side pressures or capacity constraints.
4 sector circle flow model
incomes flow around economy, long term all sectors are =.
1-factors of production
2- incomes
3-expenditure
4-flow of final g/s
aggregate supply
The total volume of goods and services that all suppliers have produced and supplied over a period of time.
factors that affect AS
inflation,
quantity of FOP
Quality of FOP
COP
Tech Change
prod growth
Exchange rates
Climatic conditions
AD
For some or total value of a expenditure on final goods and services produced by a nation and measured over a period of time equals GDP
Private consumption expenditure
Total value of all expenditure on individual and collective goods incurred by resident households and non-profit institution serving households
60% of Ad
Private investment expenditure
Expenditure with the purpose of expanding the productive capacity and productivity of firms
15-20% +most volatile
Government spending
Includes expenditure by all levels of government federal local and state
G1-current expenditure on goods or services not capital in nature therefore no ongoing benefit created for example health education defence office stationary and salaries- stable
G2-Capital expenditure which is an investment expenditure on goods and services of a capital nature therefore providing ongoing benefit for example physical hospitals schools or roads
20% of AD
X-M
Net exports also referred to as trade balance. X is spending on imports by foreign households businesses governments or other institutions. M is spending on imports by Australian households businesses governments or other institutions 60% of imports in the production process.
very volatile, net effect Is around 4% of AD
factors affecting AD
Inflation. Disposable income. Interest rates. Consumer confidence. Business confidence. Exchange rates. Levels of economic growth overseas.
consequences of high inflation
Erodes purchasing power. Resource miss allocation. Reduces international competitiveness. Redistributive affects. Savings and investment. Wage price spiral.
Consequences of low inflation
Consumers delay purchases expect prices to fall reducing private consumption expenditure. Business confidence declines leading to reduce spending decreasing private investment expenditure and layoff employees.
