Economics

Question 1

What is the circular flow of income?

Answer 1

The circular flow of income is an economic model that describes the circular movement of money between households and firms.

Question 2

What are the five sectors of the economy?

Answer 2

Households
Financial
Firms
Government
Overseas

Question 3

What is a household Sector?

Answer 3

individuals in the economy, they provide skill or ‘labour’ to firms in exchange for wages.

Question 4

What is a financial Sector?

Answer 4

banks and other financial institutions in the economy, they receive savings from households and firms and also lend money to households and firms.

Question 5

What is the firms sector?

Answer 5

all the businesses in the economy, they produce goods and services which they sell to consumers and receive revenue.

Question 6

What is the government sector?

Answer 6

made up of all bodies in national, state and local governments, they receive taxation from households and firms, and spend this money on public goods and services.

Question 7

What is the overseas sector?

Answer 7

relates to Australia’s trade with other countries. Australia exports and imports goods and services.

Question 8

What are injections and leakages?

Answer 8

Injections: exchanges that take place in the economy that put money into the economy, for example government expenditure, investments, and exports.

Leakages: exchanges that take place in the economy that take money out of the economy, for example taxation, savings, and imports.

Question 9

Leakages and injections explanation

Answer 9

When leakages outweigh injections there is a recession and a bust but if injections outweigh leakages then their is an expansion and boom

Taxation + Savings + M (imports) = Government expenditure + Investment + X (exports)

Question 10

What is the business cycle?

Answer 10

the fluctuations in the level of economic growth over time. The business cycle has 4 phases

Question 11

What are the four phases of the business cycle?

Answer 11

Upswing (expansion)
Boom (peak)
Downswing (contraction)
Bust (trough)

Question 12

What is an upswing?

Answer 12

Upswing: an increase in the level of economic activity, production and GDP, characterised by an increase in consumer spending, decreased unemployment levels, and rising wages, inflation and interest rates.

Question 13

What is a boom?

Answer 13

Boom: when the economy is in an expansion phase and operating in a positive way.

Question 14

What is a downswing?

Answer 14

Downswing: a decrease in the level of economic activity, production and GDP, characterised by a decrease in consumer spending, increased unemployment levels, and falling wages, inflation and interest rates.

Question 15

What is a bust?

Answer 15

Bust: when the economy is in a contraction phase and operating in a negative way

Question 16

What are the main economic indicators?

Answer 16

Gross domestic product
Consumer spending
Inflation
Wage rates
Interest rates
Unemployment

Question 17

What is demand?

Answer 17

Demand is the quantity of a particular good or service that consumers are willing and able to purchase at various price levels at a given point in time.

Question 18

Factors affecting demand?

Answer 18

The price of the good or service itself
Price of other goods and services
Expected future prices
Trends
The level of income
Size of population and its age distribution

Question 19

What is positive and negative network extertnality?

Answer 19

Positive network externality (bandwagon effect): people demand a good because almost everyone has it.

Negative network externality (snob effect): people demand a good because fewer people own it.

Question 20

What is the law of demand?

Answer 20

The law of demand states that the quantity demanded by consumers falls as prices rise.

Question 21

Why would there be a change in the demand curve?

Answer 21

If a price increases, the quantity demanded contracts.
If the price decreases, the quantity demanded expands.

Question 22

What is a shift in the demand curve indicate?

Answer 22

Shift of the demand curve: occurs when a factor other than price changes, the demand curve shifts left or right of its original position.

A shift to the left means a decrease in demand.
A shift to the right means an increase in demand.

Question 23

What is supply?

Answer 23

is the total amount of a given good or service a supplier offers to consumers at a given period of time.

Question 24

FACTORS AFFECTING SUPPLY?

Answer 24

The price of the good or service itself
The state of technology
Changes in the cost of factors of production
The price of other goods or services
availability
Climatic and season influences

Question 25

What does movement along the supply curve indicate?

Answer 25

If a price increases, the quantity supplied expands.
If the price decreases, the quantity supplied contracts.

Question 26

What does a shift of the supply curve indicate?

Answer 26

A shift to the left means a decrease in supply.
A shift to the right means an increase in supply.

Question 27

What is market equilibrium?

Answer 27

Equilibrium is the economic condition where the quantity supplied and quantity demanded are equal to each other.

Question 28

What are two equilibrium sets?

Answer 28

If the price is too low, the quantity demanded exceeds the quantity supplied
If the price is too high, the quantity supplied exceeds the quantity demanded

Question 29

What is a fiscal Policy?

Answer 29

Fiscal policies: the manipulation of government spending and / or taxation to achieve government economic objectives by influencing the level of economic activity.

Question 30

What is a monetary Policy?

Answer 30

Monetary policies: the RBA’s use of changes in interest rates to influence the level of the money supply and economic activity.

Question 31

Fiscal policy budgets:

Answer 31

Balanced budget (G = T)
Budget deficit (G > T)
Budget surplus (G < T)

Question 32

What are Open Market Operations?

Answer 32

is where the RBA buys or sells securities to a financial institution. This increases or decreases the supply of loanable funds in the bank’s ES accounts, thus increasing or decreasing the cash rate.

Question 33

How is GDP measured?

Answer 33

Aggregate demand (AD) = consumption (C) + investment (I) + government expenditure (G) + exports - imports (E - I)

Question 34

What are the causes of inequality on Australian economy?

Answer 34

Unemployment, hours worked and income
Inflation and purchasing power of incomes
Capitalist economic system
Increases in cost of production (leads to workers retrenched)
New technology

Question 35

What are the effects of Australians economic inequality?

Answer 35

Living standards / poverty
The way resources are used or allocated
Production levels and unemployment rates
Labour productivity and motivation to work

Question 36

Government response to inequality?

Answer 36

Welfare benefits
Progressive taxes
Provision of essential services
Compulsory superannuation

Question 37

China vs Australia statistics?

Answer 37

In 2019 China was ranked first overall in terms with Australia’s trading partners.
Border closures and increased trade tension with China has damaged the Australian economy, with exports falling 3.2% in the September quarter

Question 38

What is inflation?

Answer 38

Inflation occurs when there is an increase in the general level of prices across the economy.

Question 39

What are the 5 main categories of inflation

Answer 39

Housing (23%)
food and non alcoholic beverages (16%)
Recreation and Culture (13%)
Transport (11%)
Furnishing and household equipment and services (9%)

Question 40

The federal budget (part of the fiscal policy) focuses on what 5 main categories?

Answer 40

Social Security and Welfare
Health
Education
Defence
Public services