Economic Growth

Question 1

Define inflation

Answer 1

Is the sustained increase in average price levels over time. Governments goal of inflation is between 2-3% over a year average.

Question 2

Define price stability

Answer 2

When the Reserve Bank of Australia (RBA) tries to ensure that Australia has a stable value of the dollar when purchasing goods and services.

Question 3

What is the goal of price stability?

Answer 3

Slowly increasing by 2-3% over the course of the business cycle. This allows the RBA to have more flexibility to turn its focus away from inflation onto higher eco growth and unemployment rates.

Question 4

Define zero inflation

Answer 4

Is an indication that economic growth is too low.

Question 5

Define deflation

Answer 5

Is the sustained decrease in general or average prices.

Question 6

Define disinflation

Answer 6

A fall in the rate of inflation. These prices still rise but by less than previous).

Question 7

How is inflation measured?

Answer 7

Consumer Price Index- is an index that measures the changes in prices of particular goods and services purchased by the average AU household. Eg- health and education.

Question 8

What is the formula to calculate the CPI annually?

Answer 8

Annual % rise in the CPI = number of points increase in CPI x 100 divided by value of CPI in the first year.

Question 9

What is the formula to calculate the CPI quarterly?

Answer 9

Quarterly % rise in the CPI = number of points increase in CPI x 100 divided by value of the CPI in the first quarter.

Question 10

Define annualized inflation

Answer 10

The percentage change in inflation measured over periods of time (quarterly). This is converted to a year rate that is able to be compared to actual figures.

Question 11

Define annual inflation

Answer 11

The general change in general prices over a one year period.

Question 12

Why is the Consumer Price Index (CPI) important?

Answer 12

As it provides an average measure of changes in prices of consumer goods and services contained by AU households.

Question 13

Define headline inflation

Answer 13

Inflation that is measured by the CPI of all goods.

Question 14

Define underlying inflation

Answer 14

Inflation that is measured by the CPI of all goods and services minus volatile items and one-off events. Volatile items include necessities such as fruit, vegetables, oil, fuel. (ASK TEACHER)

Question 15

Define demand inflation

Answer 15

Is the sustained increase in the average prices of goods and services which causes an increase in aggregate demand. This may be due to higher disposable income and stronger consumer confidence.

Question 16

Define cost inflation

Answer 16

Is the sustained increase in the average prices of goods and services caused by the costs of production.
Causes of high inflation:
-Lower productivity
-Lower exchange rates (makes inputs dearer)

Question 17

What is the impact of high inflation?

Answer 17

• Erosion of purchasing power
• Loss of efficiency
• Distort the market mechanism
• Savings and investment
• International competitiveness

Question 18

What are the consequences of low inflation?

Answer 18

• Economic growth is too low, resulting in deflation.
• Low/no wages growth
• Rising unemployment

Question 19

What happened in 2017 when consumer confidence was well under 100.

Answer 19

People feeling less optimistic about the future- savings - reducing inflation.

Question 20

What has happened currently (2018) when consumer confidence increased to 100?

Answer 20

Saw pressure on prices. Since 2013 exchange rates have been depreciated- likely to have put pressure on prices.

Question 21

When does economic growth occur?

Answer 21

When there is an increase in the level of production of goods and services in AU over a year.

Question 22

How is economic growth measured?

Answer 22

Measured by the annual % rise in the real gross domestic product (GDP). The goal of economic growth is between 3-4%.

Question 23

How are living standards measured?

Answer 23

Real GDP per capita