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economics yr12 2024 > ch 2. domestic macroeconomic goals > Flashcards

ch 2. domestic macroeconomic goals Flashcards

1
Q

influences on material living standards ( dependant on the real quantity of goods and services consumed by each person per year )

A
  • levels of national production and income per head
  • way in which goods, services and incomes are distributed or divided across the population
  • rates of employment and unemployment
  • rates of inflation affecting purchasing power of incomes
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2
Q

influences on non-material living standards (depend on the quality of daily life for all people.)

A
  • levels of personal happiness
  • levels of freedom, democracy and equity of opportunity
  • physical and mental health and life expectancy
  • environmental quality and pollution levels
  • quality of personal relationships
  • leisure time relative to hours of work
  • crime rates and personal safety
  • literacy and cultural enrichment
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3
Q

what are material living standards?

A

material living standards involve the level of economic wellbeing of individuals, real per capita incomes and the ‘quantity’ of physical goods and services available to access or consume.

  • measured by the annual real level of GDP
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4
Q

what are non-material living standards?

A

non-material living standards refer to the ‘quality of a persons daily life

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5
Q

what is the relationship between non-material and material living standards?

A

both conflicting (where there are trade offs, and progress in one area undermines the wellbeing of another) and compatible relationships (where the progress of one area helps the progress of another) exist between material and non- material

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6
Q

what is economic activity?

A

economic activity refers to the actions of individuals, firms and governments that helps to generate the production of goods and services, employment and incomes

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7
Q

what is the effect of economic activity on living standards?

A

the level of economic activity directly affects current material living standards in at least 3 important ways:
1. it affects the quantity and quality of goods and services produced and available to the population in order to help satisfy its needs and wants.

  1. it influences employment opportunities, the number of jobs and the unemployment rate.
  2. it determines our average incomes, consumer prices, purchasing power and consumption levels per person.
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8
Q

the federal government uses policies to influence the economic activity in order to pursue which 3 key domestic macroeconomic goals?

A
  1. the goal of strong and sustainable rate of economic growth
  2. the goal of full employment
  3. the goal of low inflation

note: achieving these goals is important for improving society’s material living standards.

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9
Q

how does the level of economic activity directly affect the future of material and non-material living standards?

A

although higher eco activity can allow current material prosperity, increasing and extra production degrades the quality of common access recourses like air(quality), and the depletion of non-renewable scarce natural recources such as minerals, water, forests…
- this limits access for futre generations (limits welbing and material living standards) - creates negative externalities.

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10
Q

what is the main measure of the level of economic activity?

A

the change in the value of our gross domestic product(GDP)

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11
Q

what is GDP?

A

it is measured at current prices, it represents the total market value ($) of finished goods and services produced by a country over a period of time.

more notes:
- the prices paid for goods and services change between one year and the next. this affects the market or current value of national production and makes it inaccurate to compare one years production with another because the prices paid were different. - real GDP or chain volume GDP is a better measure because it removes the affects of rising or falling prices.
- therefore GDP is only an estimate of the value of finished goods and services produced
- measured on a quarterly basis
GDP is a good estimate of the value of national output.

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12
Q

what is real GDP/chain volume GDP?

A

real GDP represents the total market value($) of finished goods and services produced by a country over a period of time without the effects of rising or falling prices.

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13
Q

what are the 3 types of indicators?

A

1.lagging indicators of eco activity
2. coincident indicators of eco activity
3. leading indicators of eco activity

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14
Q

what are lagging indicators of economic activity?

A

they don’t tell us what the economy is doing right now only what was occurring some time ago. usually quarterly production statistics, collected by the ABS including unemployment rate, inflation rate

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15
Q

what is inflation?

A

inflation is the general rise in the prices paid for a basket of consumer goods and services.

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16
Q

what are coincident indicators of economic activity?

A

coincident indicators move very closely with actual changes in the level of eco activity. including market share prices

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17
Q

what are leading indicators of economic activity?

A

leading indicators seek to predict where the economy may be hading in the near future. while not completely reliable, they often forecast a general change in activity before it occurs including business and consumer confidence.

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18
Q

when examining statistical indicators and patterns in data.

A

if patterns are:
- long term( 10-20 years)
- short to medium cycles(1-3 years)
- seasonal patterns(occur same time each year)

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19
Q

when describing graphs or tables look for…

A
  • overall long term trend( up, down or unchanged)
  • cyclical patterns with ups or downs lasting a year)
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20
Q

what is the business cycle?

A

an illustration of the level of eco activity or production(GDP) including phases of a peak, slowdown, trough, expansion/recovery.

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21
Q

what is the expansion/recovery phase?

A

where:
GDP is accelerating
unemployment is falling
inflation is slowly increasing

22
Q

what is the peak(sometimes boom phase)?

A

where:
GDP is reached its maximum
unemployment is relatively low
inflation accelerates due to shortages

23
Q

what is the slowdown/contraction phase?

A

where:
GDP is increasing slowly
unemployment is rising
inflation is slowing

24
Q

what is disinflation?

A

a slowing rate of inflation, where businesses cut their prices to clear unsold goods or excess stock sitting on shelves

25
Q

what is the trough(sometimes a recession phase)?

A

where:
GDP is very slow or negative
unemployment is relatively high as firms cut output.
inflation is at its lowest or negative

26
Q

what is the ideal level of GDP?

A

rising by an average of 3% per year

27
Q

what is the ideal rate of unemployment?

A

4.0-4.5% of the labour force.

28
Q

what is the ideal rate of inflation?

A

2-3% rise per year.

29
Q

what is stagflation?

A

where:
GDP is rising slowly or negative
unemployment is high
inflation is high

here there is a stagnant level of production.

30
Q

what is the five sector circular flow model?

A

this model helps to simplify what the Australian economy looks like and how its various parts interact to influence the macro economic levels of GDP, unemployment, incomes and material living standards.

31
Q

what are the two main influences on the size of GDP shown in the circular flow model?

A
  1. the level of aggregate demand
  2. the level of aggregate supply
32
Q

short term cyclical changes in AD cause the level of eco activity to rise or fall where:

A

rising economic activity: a period of expansion in GDP caused by stronger growth in AD. where: there are lower leakages and higher injection, where business sales rise, here the actual value of GDP rises, increasing the demand for resources, creating more jobs and growing national incomes.

a slowing economic activity: a period of slowdown in GDP- the result of weaker AD, where businesses cut their output causing GDP to slow, the demand for resource slow, unemployment rise and national incomes decline

33
Q

how can the level of AS influence the potential level of eco activity in the longer term?

A

while aggregate supply responds to changes in AD(short term), in the long term the potential level of output is governed by the quantity and quality of resources available to use by firms.
- AS/ GDP will keep growing if firms have more access to resources
- AS will lower if businesses close down or have less access to resources.

34
Q

what is aggregate demand?

A

aggregate demand refers to the total value of spending by households and businesses, governments and ent overseas transactions on Australian-made goods and services.

where AD = C + I + G + (X - M)

35
Q

types of government spending. G1 and G2

A

G1: government consumption- public expenditure on goods and services to help satisfy the needs and wants (around 17% of AD)

G2: government investment- gov investment in the provision of public and social economic infrastructure e.g schools, hospitals

36
Q

factors that affect the level of AD in the economy:
changes in consumer confidence affect:

A

C and M

37
Q

factors that affect the level of AD in the economy:
changes in business confidence affect:

A

I and M

38
Q

factors that affect the level of AD in the economy:
changes in disposable income affect:

A

C and M

39
Q

factors that affect the level of AD in the economy:
changes in interest rates affect:

A

C and I

40
Q

factors that affect the level of AD in the economy:
changes in the budget affect:

A

C, I, G and X

41
Q

factors that affect the level of AD in the economy:
changes in the eco activity overseas affects:

A

X

42
Q

factors that affect the level of AD in the economy:
changes in the terms of trade affect:

A

X and M

43
Q

factors that affect the level of AD in the economy:
changes in population growth affect:

A

C, I and G

44
Q

factors that affect the level of AD in the economy:
changes in the exchange rate of the A$ affect:

A

X and M

45
Q

What is the terms of trade?

A

the terms of trade measures the ratio of the average prices the world is prepared to pay for our exports against the average price we pay the world for our imports.

given by:

TOT = export price index/import price index

46
Q

what is the exchange rate?

A

the price at which the Australian dollar is swapped for other currencies.

notes: the exchange rate effects the price and hence the attractiveness of exports we purchase.
the Australian dollar can either depreciate or appreciate

47
Q

what is the trade weighted index (TWI)?

A

changes in the dollar’s average value can b e gauged using the trade weighted index

consisting of a basket of key currencies, or alternatively, any of the individual exchange rates for around 200 foreign currencies.

48
Q

which macro economic factors drive the level of (short-term)eco activity and AD?
for the AD component:
household consumption spending (C)

A
  • consumer confidence
  • disposable income
  • interest rates on credit
  • household savings and listing debt
49
Q

which macro economic factors drive the level of (short-term)eco activity and AD?
for the AD component:
business investment spending ( I )

A
  • business confidence
  • interest rates on credit
  • changes in company tax rates
50
Q

which macro economic factors drive the level of (short-term)eco activity and AD?
for the AD component:
government consumption and investment spending (G1 and G2)

A
  • domestic economic conditions
  • election promises and political conditions
  • budget policy settings and public sector
51
Q
A

economics yr12 2024 (2 decks)

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