Chapter 4: Economics

Question 1

Economic Activity

definition

Answer 1

• Involves production, distribution, and buying and selling of goods and services
• Measured with GDP

Question 2

Economic Activity affects:

Business Operation

Answer 2

• During EX, luxurious items are produced more

- During EC, business operations focus more on producing necessities

Question 3

Economic Activity affects:

Consumer confidence

Answer 3

• During EX, consumers are more likely to spend as they are more confident with their level of income
• Speculate that their income will grow more
• More likely to borrow and spend

Question 4

Economic Activity affects:

Company’s entry into the market

Answer 4

• During EX, companies entering a market has lower risk
• More likely to borrow and spend
• Result in higher success as economic activity is strong and expected to continue growing

Question 5

Economic Activity effects:

Economic Activity of trading partners

Answer 5

• If China’s economy is expanding, Australia’s economy will expand too
• Their income is growing together with their SoL
• Demand for more of Australia’s exports and raw materials to build infrastructure and produce more goods

Question 6

Interest Rates

definition

Answer 6

• The cost of borrowing money

- Determined by RBA

Question 7

Interest Rates affects:

Consumers ability to purchase

Answer 7

• When IR is low, consumers are more likely to take up loan to purchase g/s
• Debt repayment is low

Question 8

Interest Rates affects:

Businesses willingness to invest

Answer 8

• When IR is low, businesses are more likely to take up loan to expand business
• Debt repayment is low
• Does not affect much of the business’ cash flow

Question 9

Discretionary Spending

definition

Answer 9

• Affects discretionary income

- Discretionary income is the income left after spending life’s essentials

Question 10

Discretionary Spending affected by:

Consumer’s income level

Answer 10

• When consumer’s income level increases, they are more likely to spend
• Confidence level is high

Question 11

Discretionary Spending affected by:

Speculation

Answer 11

• If consumers speculate that the economy is contracting, their discretionary income would not matter as their confidence is low
• Concern with their job security and income level

Question 12

Currency Fluctuation

definition

Answer 12

The swing in currency value due to floating exchange rate system

Question 13

Currency Fluctuation affected by:

Interest Rate

Answer 13

• The cost of borrowing money
• If IR increases, foreigners money deposit increases
• DD for AUD increases, AUD app

Question 14

Currency Fluctuation affected by:

Inflation Rate

Answer 14

• The rate at which price increases overtime
• If inflation increases, goods will seem relatively expensive to foreigners
• DD for goods decreases, DD for AUD decreases, AUD dep

Question 15

Currency Fluctuation affected by:

Speculation

Answer 15

• When consumers speculate that AUD would app and want to make a profit out of it later, they would want to deposit more money into Aus bank
• DD for AUD increases, AUD app

Question 16

Currency Fluctuation affected by:

Competitiveness level of goods

Answer 16

• When quality of Aus goods improves, DD for Aus goods increases
• DD for AUD increases, AUD app