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Year 10, 2022 > Economic Performance, Term 1. > Flashcards

Economic Performance, Term 1. Flashcards

1
Q

What is economics?

A

It is a social science directed at the satisfaction of needs and wants through the allocation of scarce resources which have alternative uses.
It is the study of scarcity and choice.

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2
Q

What are needs?

A

They are basic and necessary for our survival. E.g. food, clothing, shelter.

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3
Q

What are wants?

A

They are desires for something that is NOT essential for survival. They help us survive in a better way. E.g. mobile phone, jewellery.

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4
Q

What is scarcity?

A

It is the state of being in short supply of something.

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5
Q

What are the types of economy systems?

A
  1. subsistence economy
  2. market economy
  3. command economy
  4. mixed economy
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6
Q

What is a subsistence economy?

A

An economy which is not based on money, though barter may occur, and which commonly provides a minimal standard of living. Where traditions determine economic decision making however these no longer exist.

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7
Q

Characteristics of a subsistence economy.

A

Moneyless and relies on natural resources to provide for basic needs through hunting, gathering, and agriculture.

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8
Q

Example of a subsistence economy.

A

North Sentinel Island in the Andamans, home to the Sentinelese tribe.

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9
Q

What is a market economy?

A

It is a free will economy, where production and prices are determined by unrestricted competition between privately owned businesses.

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10
Q

Characteristics of a market economy

A

Private ownership, freedom of choice, self-interest, buying and selling platforms, competition and limited government intervention.

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11
Q

Example of a market economy.

A

Hong Kong in China.

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12
Q

What is a command economy?

A

An economic system is where a central government makes all economic decisions.

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13
Q

Characteristics of a command economy.

A

Government creates a central economic plan which sets the priorities for the production of all goods and services, owns monopoly businesses, creates laws, regulations and directives to enforce the central plan.

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14
Q

Example of a command economy.

A

North Korea.

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15
Q

What is a mixed economy?

A

Combination of market, command, and subsistence economies and has both the advantages and disadvantages of the three.

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16
Q

Characteristics of a mixed economy.

A

Allows the free market and laws of supply and demand to determine prices and driven by motivation of the self-interest of individuals.

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17
Q

What is the business cycle?

A

It depicts the rise and fall in output (production of goods and services) over time.

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18
Q

The Australian Economy is…

A

market-based. Most decisions to produce or consume goods and services reflect demand and supply in the market.

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19
Q

Why is the economy so important?

A

It can influence the decisions we make, which influences how the economy is performing. It is important to us all and can equally affect our lives.

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20
Q

How do we know if our economy is doing well?

A

When economists are constantly monitoring economic activity.

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21
Q

What are the key economic indicators?

A

Economists investigate many different indictors to build up a picture of how the Australian economy is performing. Key indictors are inflation rates, GDP and unemployment rates.

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22
Q

What is inflation?

A

Inflation is the rate of increase in prices over a given period of time.

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23
Q

What is Australia’s inflation target?

A

Australia’s inflation target is to keep consumer price inflation between 2-3% on average over time.

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24
Q

What causes high inflation?

A

Some reasons high inflation could occur is if:

  • the economy grows faster than its speed limit, this leads to demand for goods and services may exceed what businesses can supply, increase wages if difficult to find workers
  • the supply of some goods and services is disrupted then their prices may increase, this effects other prices if that good or service is an input into making them other goods or services.
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25
Q

What happens when inflation is too high?

A

Prices might rise faster than incomes. This means that people can afford fewer goods and services than before, making them worse off.

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26
Q

What causes low inflation?

A

Some reasons low inflation could occur is if

  • there is reduced government spending
  • stock market failure
  • consumer desire to increase savings
  • tightening monetary policies (higher interest rates)
  • the output of the economy grows faster than the supply of circulating money and credit.
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27
Q

What happens when inflation is too low?

A

Prices might stay the same or even fall (deflation).

  • businesses to make smaller profits meaning they can’t afford to employ people and higher unemployment leads to less spending of goods and services
  • decision makers may decide to reduce spending today to wait until goods and services are cheaper in the future.
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28
Q

What is CPI?

A

Consumer Price Index (CPI) is an indicator of inflation and is a measure that examines the weighted average of prices of a basket of consumer goods and services.

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29
Q

What are the limitations of inflation?

A
  • CPI is not an indicator of the price level
  • Coverage
  • Quality changes
  • Substitution bias
  • Cost of living
  • New products
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30
Q

What is GDP?

A

It is a measurement that seeks to capture a country’s economic output.

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31
Q

What is a consumer and intermediate good?

A

Consumer goods are produced for the purpose of direct consumption by the end consumer.
Intermediate goods are referred to as goods that are used by businesses in producing goods or services.

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32
Q

Why does GDP matter?

A

It is key economic indicator. Policymakers, government officials, businesses, economists and the public alike rely on GDP and related statistics to help assess the economy’s well-being and to make informed decisions.

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33
Q

How does GDP measure health?

A

By comparing it to the previous quarters/years - past.

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34
Q

When there is a positive GDP (healthy economy)…

A
  • consumers are spending more
  • businesses are expanding, making and selling more goods and services
  • businesses need more workers, which means more jobs and higher wages
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35
Q

When there is a negative GDP (unhealthy economy)…

A
  • consumers are spending less
  • businesses are making and selling fewer goods and services
  • businesses have fewer jobs and lower wages
36
Q

What are some important facts about GDP?

A

The economy has an optimal range over which it can grow, called ‘speed limit’. If it grows faster than the ‘speed limit’ people may be worse off through high inflation. If it grows slower than the ‘speed limit’ people lose their jobs and businesses struggle to make profits.

37
Q

What are some benefits of economic growth?

A
  • increased life expectancy
  • improved government finances
  • higher incomes
  • reduced poverty
  • better education
38
Q

What are some costs of economic growth?

A
  • inequality
  • use of non-renewable resources
  • inflation
  • current account deficit
  • pollution
  • congestion
  • disease of affluence
39
Q

What is the GDP formula?

A

G D P = C + I + G + ( X - M )

c = consumption - consumer spending
i = investment - Investments (spending by business)
g = government spending - purchases made by the government
x = exports - exports minus -imports
m = imports
40
Q

How is GDP reported?

A

Nominal GDP or Real GDP

41
Q

What is nominal GDP?

A

The market value of the final output of goods and services within a country in a given period, elevated at current market prices.

42
Q

What is real GDP?

A

The market value of the final production of goods and services within a country in a given period, adjusted for price changes that may have occurred over time. factors in inflation.

43
Q

What is unemployment?

A

Unemployment occurs when someone is willing and able to work but does not have a paid job.

44
Q

How is unemployment measured?

A

The unemployment rate is the percentage of people in the labour force who are unemployed. Consequently, measuring the unemployment rate requires identifying who is in the labour force.

45
Q

Key terms of unemployment…

A
  • labour force, sum of employed and unemployed people.
  • employed, includes people who are paid in a job for one hour or more
  • unemployed, includes people who are not in a paid job but are actively searching for one.
  • unemployment rate, the percentage of people in the labour force that are unemployed.
  • participation rate, the percentage of people in the working age population that are in the labour force.
  • not in the labour force, includes people not in a paid job and who are not looking for work.
46
Q

What are the main types of unemployment?

A
  1. cyclical
  2. structural
  3. frictional
47
Q

What is cyclical unemployment?

A

The component of overall unemployed that results directly from cycles of economic upturn and downturn. It typically rises during recessions and depressions during economic expansions. Product downfall means no demand for products and more demands for jobs means lower wages.

48
Q

Example of cyclical unemployment…

A

An example of cyclical unemployment is when construction workers were laid off during the Great Recession following the financial crisis of 2008. With the housing market struggling, construction of new homes fell dramatically, leading to a rise in cyclical unemployment for construction workers.

49
Q

What is structural unemployment?

A

Occurs when there is a mismatch between jobs available and the people looking for work, also a mismatch between jobs and skills. It exists when economic conditions are good.

50
Q

Example of structural unemployment…

A

An example of structural unemployment is when an autoworker who is temporarily laid off from an automobile company due to a decline in sales.

51
Q

What is frictional unemployment?

A

Occurs when people move between jobs in the labour market and when people transition into and out of the labour force. It is generally shorter term and likely to occur at all points of the business cycle and may not influence wages or inflation.

52
Q

Example of frictional unemployment?

A

An example of frictional unemployment is when employees leave their current positions to find new ones.

53
Q

What are the four phases of the cycle?

A
  • expansion
  • peak
  • contraction
  • trough
54
Q

What is economic expansion?

A

The upswing of the cycle towards a peak. It is associated with

  • increase in production/output
  • decrease in unemployment
  • increase in wages
  • increase in consumer spending
55
Q

Example of a mixed economy.

A

Australia

56
Q

What is economic contraction?

A

The downswing of the cycle towards a trough. It is associated with

  • decrease in production/output
  • increase in unemployment
  • decrease in wages
  • decrease in consumer spending
57
Q

What is a boom?

A

A period of strong economic expansion where businesses are operating at full capacity or above and the unemployment rate is very low. Income and production are at very high levels. This can lead to rapid growth in prices.

58
Q

What is a recession?

A

A recession is when output has fallen for a period of time and the unemployment rate increases.

59
Q

What is a depression?

A

A depression is a very severe recession. There is a large contraction in the economy, and the unemployment rate is likely to be at a very high level.

60
Q

What happens during an expansion in the business cycle?

A

As consumers demand more output businesses produce more output to meet this increased demand, but they will eventually reach their productive capacity.
More demand of output than output available – increasing prices

61
Q

What happens during a contraction in the business cycle?

A

As consumers demand less, businesses produce less output. Businesses may lower prices or offer discounts to increase sales leading to lower inflation or deflation

62
Q

What is the Reserve Bank of Australia?

A

It is the country’s central bank. They contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people by conducting monetary policy to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation’s banknotes.

63
Q

What is it called when inflation increases at a very high rapid rate?

A

Hyperinflation.

64
Q

How do banks smooth the business cycle?

A

If the economy is expanding too quickly banks will then raise the cash rate which makes it more expensive to borrow money but more attractive to save money, encouraging people to save more and borrow/spend less.

65
Q

What is interest and interest rate?

A

When people and businesses borrow money from a bank, the bank charges them interest. The interest rate is the percentage they are charged.

66
Q

How does the RBA influence the economy?

A

The RBA influences the economy by carrying out ‘monetary policy’.

67
Q

What is the standard of living?

A

It is the level of material welfare of a community, class or person.

68
Q

How can the standard of living be measured?

A

At an individual (micro) or economy (macro) level. Also financial of total population.

69
Q

What does the standard of living include?

A

Items like goods and services and ability to earn an income.

70
Q

How is GDP incorporated in standard of living?

A

It gives indications but doesn’t always provide accurate pictures of all individuals.

71
Q

What does GDP per capita indicate in standards of living?

A

Some ideas of standards of living but social indicators in a country are also important.

72
Q

What is Economist Intelligence Unit (EUI)?

A

A UK based independent business that offers forecasting and advisory services on the ‘liveability’ and cost of living in the world’s major cities. They measure health, family life, community life, material wellbeing, job security, political freedom and stability, gender equality, security, climate and geography - high or low standards of living.

73
Q

What is the Better Life Index used for?

A

To access the quality of life in a country based on numerous indications.

74
Q

What is the Happy Planet Index?

A

Information provider and measurer on sustainable well-being.

75
Q

What is the relationship between standards of living and economic performance?

A

Increased economic growth can better the living standards of a country. The two correlate and increase together.

76
Q

What are benefits of the relationship between standards of living and economic performance?

A
  • increased consumption (better access to goods and services)
  • high employment (pay more taxes, increasing government wealth therefore increased social services)
  • less poverty (social problems, isolation and crime)
77
Q

What is monetary policy?

A

The use of interest rates to influence demand, employment and inflation in the economy.

78
Q

How does the monetary policy link to the business cycle?

A

It is one of the main economic policies used to stabilise it.

79
Q

What are the main objectives of monetary policy?

A
  • economic growth
  • price and exchange stability
  • full employment
  • maximum output
80
Q

What is the impact of higher interest rates on the economy?

A

Slow down economic growth, decrease inflation, increase unemployment, costs of borrowing, and appreciation in exchange rate

81
Q

What is the impact of lower interest rates on the economy?

A

Causes inflationary pressure, boosts economic growth, more desirable investments, low borrowing costs, and depreciation in exchange rates

82
Q

What is fiscal policy?

A

When the government adjusts its spending levels and tax rates to monitor and influence a nation’s economy

83
Q

What would happen if federal increases or taxes were reduced?

A

Can promote more employment and output but these policies also put upward pressure on the price level and interest rates

84
Q

What are the tools of fiscal policy?

A

taxation and government spending

85
Q

What are the types of fiscal policy?

A
  • neutral
  • expansionary
  • contractionary
86
Q

How are the effects of fiscal policy not the same for everyone?

A

tax cuts usually only effect the middle-class economic group and adjustments in government spending may only affect a specific group.

Year 10, 2022 (3 decks)

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