Business Cycle Flashcards
How does GDP and unemployment change during expansions and recessions?
During EXPANSION, GDP rises and unemployment shrinks, while this reverses in periods of recession.
What does the business model describe?
short term fluctuations in economic activity
Key characteristics of a boom/peak period
- High levels of consumption expenditure
- Confidence throughout the economy
- High participation rates (lower unemployment rate)
- Target to above target inflation rates
What are upswings and downswings triggered by?
Government intervention
Key characteristics of a trough period
- Low levels of consumer and business confidence
- Reduced pressure on prices
- Increase in levels of savings (think back to the circular flow model)
- Higher unemployment rates
How did economy change because of covid?
- Australia went into a recession on June 2020
- Lockdowns all over the country
- People could not go into work, thus decreasing their income
- Workplaces shut down- businesses go under
- Entire travel industry shuts down- major income source for Australia
- Australia’s healthcare industry under the pump
- Record lows of many of our indicators
GDP -6.3
Inflation -0.3
Unemployment 6.8
2021 Economy
- Booming housing industry
- Childcare subsidies gone (leading contributor to high inflation)
- Petrol prices back to normal/high (leading contributor to high inflation)
- Exporting record high quantities of Iron Ore to China
June 2022
- Household spending and low unemployment has fueled recovery in 2022. Also, record high level of Iron Ore exports to China have boosted GDP.
- The price of many significant daily necessities is rapidly increasing/has rapidly increased. Examples: petrol, natural gas, groceries, construction materials, clothing. Mostly as a result of war in Ukraine (oil/gas), and local/global supply chain disruptions related to COVID.
- inflation measured at 5.1% in March 2022. In response to this above-target inflation, RBA has increased interest rates
- unemployment at a record low of 3.9%.
Current Economy -provide stats
- Economy currently experiencing a downswing due to extremely high inflation/ cost of living and relatively low economic growth rates
- inflation is still at 6%
- Cash rate at 4.1% driving interest rates up and Inflationary pressures upon the economy as consumers are being hit by increases in the cost of living.
- Unemployment rate at low of 3.5% which is below NAIRU
- Russia/Ukraine conflict still ongoing causing high fuel prices, maufactoring material + building material prices
What are leading indicators with examples
Leading indicators change before a direction becomes evident in the rest of the economy, therefore they predict trends in economic activity.
Eg. building approvals, share prices, levels of business confidence
What are coincident indicators with examples
Coincident indicators appear to move in line with the level of economic activity.
Eg. manufactoring output, retail sales, GDP
What are lagging indicators with examples
Lagging indicators are not expected to show change until after trends in the rest of the economy are confirmed.
Eg. Interest rates, Inflation rate (CPI), unemployment rate
What is net income compared to gross income?
- Gross income is the addition of all forms of income including transfer payments and indirect benefits.
- Net income is gross income minus tax, superannuation payments, medicare deductions etc. This is known as Disposable Income (Yd).
What is wealth?
- The difference between households assets & their liabilities.
- Assets are things such as property, shares, savings & superannuation.
- Liabilities include mortgages, personal loans, credit card debt
Gini coefficient
- Used to measure the level of inequality
- Perfectly equitable = 0
- Perfectly inequitable = 1
- Therefore the higher the the Gini Coefficient the more inequitable the distribution of income or wealth.
