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HSC TOMORROW - Economic Issues > Economic Growth - Daniel > Flashcards

Economic Growth - Daniel Flashcards

1
Q

Define economic growth

A

an increase in the volume of goods and services that an economy can produce over a period of time

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2
Q

How is economic growth measured?

A

by the annual rate of change in real Gross Domestic Product

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3
Q

What are the ways in which economic growth can be measured?

A

Quarterly

Year-on-Year

Annual

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4
Q

What is the formula for aggregate demand?
- Define It

What is the formula for aggregate supply?
- Define It

What is the formula for equilibrium?

A

C+I+G+(X-M)
- The total level of expenditure in an economy over a period of time

C+S+T
- The total level of income in an economy over a period of time

S+T+M = I+G+X

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5
Q

What period does aggregate demand drive growth?

A

The short to medium term

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6
Q

What are the four areas that make up aggregate demand?

A

Consumption

Investment

Government Spending & Taxation

Exports & Imports

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7
Q

What percentage of expenditure does consumption make up?

A

55-60%

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8
Q

What are the four influences on consumption?

A

Level of Income

Consumer Expectations

Level of Interest Rates

Distribution of Income

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9
Q

What percentage of expenditure does investment make up?

A

10-15%

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10
Q

What are the two influences on investment?

A

Cost of Capital Equipment

Business Expectations

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11
Q

What influences the cost of capital equipment?

A

Changes in Interest Rates

Changes in Government Policy

Change in Price/Productivity of Labour

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12
Q

What influences business expectations?

A

Expected Demand

General Economic Outlook

Inflation

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13
Q

What percentage of expenditure does government spending make up?

A

20-25%

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14
Q

What percentage of income does taxation make up?

A

20-25%

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15
Q

What percentage of aggregate demand are exports and imports equal to?

A

20-25%

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16
Q

What influences Australia’s net exports/imports?

A

Overseas Incomes

Exchange Rates/Level of International Competitiveness

17
Q

Define the simple multiplier

A

The greater-than-proportional increase in national income resulting from an increase in aggregate demand

18
Q

What is the formula for the simple multiplier?

A

K=1/MPS

OR

K=1/1-MPC

19
Q

What is the formula for calculating the impact of an investment?

A

Change in Y=k*change in aggregate demand

20
Q

What period does aggregate supply drive growth?

A

The long-term

21
Q

What determines aggregate supply?

A

The quantity and quality of the factors of production in an economy

22
Q

When does aggregate supply increase?

A

When a higher level of output can be produced for the same cost

When there is an increase in quantity or an improvement in the quality of the factors of production

23
Q

What changes can increase aggregate supply?

A

Population Growth

Discovery of New Resources

Workers Acquiring New Skills

Increased Capital

The Adoption of New Technology

Measures to Improve Efficiency

Government Policies

24
Q

What is the result of an increase in aggregate demand without a corresponding increase in supply?

A

Inflation

25
Q

How does economic growth impact living standards?

A

Leads to an increase in GDP per capita - Australia’s three decades of growth saw annual growth of 1.6%

Households have higher wages and disposable incomes, leading to improvements in quality of life

26
Q

How does economic growth impact unemployment?

A

Because it increases output, economic growth creates jobs

Long term economic growth leads to the development of new and more advanced industries

27
Q

How does economic growth impact inflation?

A

Economic growth leads to price increases & inflation

High levels of spending means aggregate supply cannot keep pace with aggregate demand

Macroeconomic policy aims to keep growth at a level that does not create rapid inflation

28
Q

How does economic growth impact external stability?

A

Higher disposable incomes leads to increased spending on imports

If Australia is growing faster than trading partners, this will lead to an increase in the CAD

An excessive CAD can undermine confidence in an economy

This is better known as the ‘balance of payments constraint’

29
Q

How does economic growth impact income distribution?

A

Benefits of growth often flow disproportionately to higher-income earners or capital owners

Thus, rapid economic growth can lead to increased income inequality

Absolute poverty will fall, but relative poverty will rise

30
Q

How does economic growth impact the environment?

A

Growth is often pursued with little regard to the natural environment

This can lead to pollution, depletion of non-renewables and climate change

Environmental economists urge governments to take on ‘ecologically sustainable development’

31
Q

What are recent statistics with regard to Australia’s economic growth?

A

Australia enjoyed 28 year of economic growth between 1991-2019 until it went into a recession in 2019-20 due to the impact of the COVID-19 pandemic (a fall of 7% GDP in the June 2020 Quarter)

During this period it averaged a per annum growth rate of 2.9%, although this fell to 2.4 and 2% during the 2010s

32
Q

What were the factors that contributed to Australia’s record economic growth?

A

1) A Favourable Global Economy
- Exports benefit from Chinese demand

2) Structural Improvements in Terms of Trade
- TOT reached their highest level in 140 years in Sep. 2011, adding 15% to Australian national income

3) Successful Macroeconomic Management
- During the period, inflation averaged 2.75% of GDP

4) Pre-emptive Monetary Policy
- Used by the RBA to lower inflation

5) Active Fiscal Policy
- Used during periods of downturns to boost growth

6) Higher Population Growth
- In 2019, net migration contributed 60.2% to Australia’s economic growth

7) Large Increase in Asset Prices
- increased the wealth of household, encouraging greater borrowing and consumption (the wealth effect)

8) Slowdown in Productivity Growth
- Labour productivity was just 1.2% p/a in 2000s, and 1% in 2010s

33
Q

How can macroeconomic policy influence growth?

A

Influences growth in the short to medium term

Fiscal Policy: influencing the level of demand through government expenditure and taxation

Monetary Policy: the RBA influences demand through interest rates

34
Q

How can microeconomic policy influence growth?

A

Influences growth in the long term

Focuses on increasing aggregate supply

Deregulation a major factor in Australia’s eco growth

HSC TOMORROW - Economic Issues (6 decks)

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