Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

rwfegtbrwhyn > Chapter 8 > Flashcards

Chapter 8 Flashcards

1
Q

What is economic growth?

A

→ the increasing capacity of the economy to satisfy the material wants of its
members; enables households to achieve a higher standard of living in material terms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

There are three main economic objectives that the government tries to achieve in the economy

A
  1. Sustainable economic growth
  2. Price stability
  3. Full employment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q
  1. Sustainable economic growth (GDP growth)
A

Sustainable economic growth refers to a rate of growth which can be maintained without creating other significant economic problems for future
generations – TARGET 3-4%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q
  1. Price stability (inflation)
A

Low levels of inflation; achieving price stability is important because
inflation adversely affects many aspects of our economy – TARGET 2-3%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q
  1. Full employment (employment rate)
A

Everyone who is willing and able to work can find employment; the
natural rate of unemployment – TARGET 4-5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Economic Growth and the PPF

A

Higher rates of economic growth expand the nation’s
opportunity set in the future
Thus, current rates of growth affect future
production and consumption possibilities for the community.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Measurement of Economic Growth

A

GDP
Nominal GDP
Real GDP
Real GDP per capita

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Gross Domestic Product (GDP)

A

the total market value of all final goods and
services produced in a country in a period of time (usually a year).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Nominal GDP

A

gross domestic product expressed in today’s prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Real GDP

A

gross domestic product with inflation removed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Real GDP Per Capita

A

gross domestic product divided by population. This is the most meaningful measure of economic growth as it represents society’s ability to satisfy the wants of its members.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Calculating Economic Growth

A

((GDP year 2 - GDP year 1) / GDP (year 1)) times 100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Limitations of GDP as a measure of economic welfare

A

Does not measure distribution of growth
Does not account for non-market production
Does not measure changes in overseas relationships
Does not measure quality of life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Sources of economic growth

A
  1. The rate of population change.
  2. The rate of increase in capital equipment per worker.
  3. Technological progress and the application of new ideas in production.
  4. Improvements in the skills and productivity of the labour force.
  5. The size of the natural resource base.
  6. The capacity of an economy to change.
  7. The willingness of an economy to trade with overseas economies.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

3 Types of Efficiency

A

Technical efficiency
Allocative efficiency
Dynamic efficiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Technical efficiency

A

productivity given fewest inputs/resources necessary

17
Q

Allocative efficiency

A

where production meets consumer preferences/ where goods and
services are distributed according to these preferences

18
Q

Dynamic efficiency

A

involves improving efficiency over time. Relates to how fast firms/industries can respond to changes in market conditions or technology

19
Q

Foundations of Australian Growth

A

Natural resources
Human resources
Investment and capital
Technological progress

20
Q

Benefits of economic growth

A

Increasing real income and material wealth
More economic opportunities
A taxation dividend to government
Higher quality of goods and services

21
Q

Costs of economic growth

A

May not raise the living standards of everyone
in the community
It’s associated with structural change in the
economy
May bring inflationary pressure
Has social costs
Is associated with economic ‘bads’ as well as
‘goods’

22
Q

What is inflation

A

Inflation is a persistent and appreciable rise in the general level of prices. Describes noticeable price
increases that occur over time and across a range of goods.

23
Q

CPI (consumer price index)

A

an index number that records changes in the general level of prices

24
Q

Inflation formula

A

(CPI year 2 - CPI year 1 / CPI year 1) x 100

25
Q

Types of inflation

A

Headline inflation
Underlying inflation

26
Q

Headline inflation

A

Inflation rate including all items in the CPI (generally what is reported in the
media); is a broad measure of changes in the cost of purchases made by households in capital cities

27
Q

Underlying inflation

A

Inflation rate excluding volatile items from the CPI such as fruit and
vegetables and the retail price of petrol. (more accurate)

28
Q

Limitations of CPI

A
  1. Only reports price movements in metropolitan areas and families
  2. Not regarded as a true cost-of-living index because it does not reflect changing consumer
    preferences or the substitutions which consumers make from day to day in response to
    relative price changes (e.g. consumers buying apples rather than bananas if the price of
    bananas rises due to a cyclone)
  3. Cannot account for changes in the quality of goods over time and is likely to overstate price
    increases
  4. Doesn’t take into account all goods
29
Q

Demand pull inflation

A

Demand pull inflation is a
type of inflation when high levels of demand are
caused by high levels of aggregate expenditure. This
can occur when there is excess demand for the
resources available at a time.

30
Q

High levels of aggregate demand are indicated by:

A

High levels of spending on construction and consumer durables
Excess demand for labour in some sectors of the economy, forcing wages up in those sectors
and thus prices
Excess money supply

31
Q

Cost pull inflation

A

Cost push inflation occurs when rising production costs are passed on to consumers, who then pay higher for final goods and services. Costs reflect the prices paid for productive inputs.

32
Q

Consequences of inflation

A

The effects of inflation can be categorised into two areas – level of output, income and employment
and secondly the distribution of income and wealth in the economy.

33
Q

Output effects

A

real incomes decrease, economic efficiency decrease, uncertainty increase, lack of confidence, hyperinflation

34
Q

Hyperinflation

A

– when inflation gets out of control, it can cause the economy and currency
to collapse; people lose confidence in money as a measure of store value

35
Q

Redistribution effects

A

Holders of assets become richer
Income earners lose
Creditors and debitors paid back with inflated dollars
Taxpayers pay higher taxes while purchase power decreases

36
Q

Groups that gain with high inflation

A

Holders of assets
The government
Debtors

37
Q

Groups that lose with high inflation:

A

People on fixed wages or pensions
Creditors
Taxpayers

rwfegtbrwhyn (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions