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HSC Economics > Economic Growth: Basics > Flashcards

Economic Growth: Basics Flashcards

1
Q

What is economic growth?

A

An increase in GDP (which is the value of goods and services produced in a given period of time)

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2
Q

GDP will only increase if either…

A

…aggregate demand or aggregate supply increase

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3
Q

What is aggregate demand?

A

The total demand for all goods and services

AD = C + I + G + X - M

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4
Q

What is meant by ‘investment’ when talking about aggregate demand?

A

Spending by firms on increasing production capacity (e.g. spending on building a new factory or buying new capital)

Note: a person buying shares or foreigners lending money to Australians does NOT affect aggregate demand (unless firms actually spend that money)

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5
Q

What is aggregate supply?

A

The total productive capacity of the Australian economy

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6
Q

What are 2 reasons consumption might increase?

A
  1. Increased consumer confidence in an upturn

2. Lower interest rates

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7
Q

What are 2 reasons investment might increase?

A
  1. Increased investor confidence in an upturn

2. Lower interest rates

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8
Q

What are 2 reasons net exports might increase?

A
  1. A lower exchange rate

2. A higher ToT

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9
Q

What are 3 benefits of economic growth?

A
  1. Increased incomes and living standards
  2. Increased tax revenue for the government
  3. Decreased unemployment
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10
Q

What are 4 costs of economic growth?

A
  1. Increased demand inflation
  2. A worse BOGS and current account
  3. Worse environmental sustainability (from using more resources and more pollution)
  4. Wider inequality
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11
Q

What is the formula for MPC?

A

Change in consumption / change in income

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12
Q

What is the formula for the multiplier?

A

1 / MPS

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13
Q

What is the formula for the increase in GDP as a result of an injection?

A

Change in GDP = Injection x Multiplier

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14
Q

What are the 3 injections and what are the 3 leakages?

A

Injections: Investment, Government Spending, Exports

Leakages: Savings, Taxation, Imports

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15
Q

If injections are greater than leakages…

A

GDP will increase due to more AD

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16
Q

If leakages are greater than injections…

A

GDP will decrease due to less AD

17
Q

If injections are equal to leakages…

A

The economy is in equilibrium and GDP stays the same

18
Q

What are the main trends in Australia’s economic growth over the past 10 years?

A

2013-2019: Low GDP growth following the end of the mining boom

2020: Negative GDP growth due to lockdowns in the pandemic

2021-22: Strong GDP growth due to recovery from the pandemic, the ToT spike and macro policy

19
Q

What are the main government policies to increase economic growth?

A
  1. Fiscal policy
  2. Monetary policy
  3. Microeconomic policy
20
Q

What are the 3 types of budget outcome?

A

Surplus, balanced, deficit

21
Q

What are the 3 types of fiscal stance?

A

Contractionary, neutral, expansionary

22
Q

What is the difference between an expansionary fiscal stance and a budget deficit?

A

A deficit is a negative budget in one year, an expansionary stance is a worsening of the budget from one year to the next

23
Q

What is the difference between a budget surplus and a contractionary fiscal stance?

A

A surplus is a positive budget in one year, a contractionary stance is an improvement of the budget from one year to the next

24
Q

Two examples of a non-discretionary (or cyclical) change to the budget are…

A
  1. People earn more in a boom, so pay more in tax

2. Fewer people are unemployed in a boom, so fewer people receive unemployment payments (Jobseeker)

25
Q

Two examples of a discretionary (or structural) change to the budget are…

A
  1. The government increases tax rates

2. The government cuts spending (e.g. on welfare or infrastructure)

26
Q

How can fiscal policy improve economic growth?

A

During a downturn, the government can use it to increase aggregate demand

27
Q

How can monetary policy improve economic growth?

A

During a downturn, the government can use it to increase aggregate demand

28
Q

How can microeconomic reform improve economic growth?

A

The government use it to improve the efficiency of industries in the economy, increasing aggregate supply

29
Q

Why is microeconomic reform a more sustainable policy for improving economic growth?

A

Micro improves efficiency and leads to less inflation, while macro (fiscal/monetary) increases AD leading to higher inflation

HSC Economics (39 decks)

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