Economics

Question 1

What is the aim of an economy?

Answer 1

To satisfy the wants and needs of its citizens. It does this by providing a market structure where buyers and sellers meet to exchange goods and services.

Question 2

What is economic growth

Answer 2

The growth in the volume of goods and services produved in an economy over time

Question 3

How is economic growth measured

Answer 3

GDP, which is the total market value of all goods and services produced in an economy over a period of time, usually a year.

Question 4

What are the reasons for economic growth?

Answer 4

Population growth, to improve quality of products, replace goods and services that have been consumed.

Question 5

What is a recession

Answer 5

Two or more consecutive quarters of negative economic growth

Question 6

What are the limitations of GDP

Answer 6

• GDP does not include the value of activities such as volunteer work, domestic duties done by stay – at – home parents.
• GDP does not show who receives the benefits of increased production which can see a rise in equality in the economy.
• GDP doesn’t consider negative externalities such as the impact on the environment such as pollution and resource depletion because of increased production

Question 7

What is inflation

Answer 7

The increase in the general level of prices in the economy

Question 8

How is inflation measured

Answer 8

ABS measures inflation using the consumer price index which measures the price change of a typical basket of goods purchased by an average household each quarter

Question 9

Demand inflation

Answer 9

Occurs when the economy is going through a period of strong economic growth.
It’s caused by an increase in consumer and business optimism, income, exports, low interest rates and taxes

Question 10

Supply inflation

Answer 10

Occurs when the cost of producing goods and services increases.
It’s caused by increased wages, interest rates, utility and raw material costs and inflation in trading partner economies.

Question 11

Effect of inflation

Answer 11

it makes it difficult for the government to achieve economic growth and full employment.
It decreases standards of living.
Consumer and business confidence decreases, so the level of spending decreases.
And impacts the real purchasing power of households.

Question 12

Unemployment

Answer 12

A situation where people who are willing and able to find work are unable to find employment

Question 13

Labour force definition

Answer 13

People who are aged 15 and over who are willing and able to work

Question 14

How to calculate the unemployment rate

Answer 14

(unemployed people/labour force) x100

Question 15

Cyclical UE

Answer 15

when level of spending falls

Question 16

Structural UE

Answer 16

changes in methods of production

Question 17

Frictional UE

Answer 17

unemployed between finishing one job and starting another, or moving in and out of the labour force

Question 18

Seasonal UE

Answer 18

due to the ending of jobs at the same time each season

Question 19

Underemployment

Answer 19

when people are employed but want to work more hours

Question 20

hidden employment

Answer 20

when people aren’t officially counted as unemployed, they want to work but have given up looking.

Question 21

Economic effects of unemployment:

Answer 21

• Decreased national production – with resources not fully used, the economy is not operating at full capacity, less goods and services are available and GDP will fall
• Less government revenue – less tax
• More government spending – on welfare payments, less on other services.

Question 22

Social effects of unemployment:

Answer 22

• Decreased standard of living
• Loss of skills from the workplace
• Increased stress on family and friends
• Loss of self esteem and increased mental health issues
• Increased crime rates

Question 23

How are living standards measured

Answer 23

Materials living standards is your access to physical goods and services, measured by GDP.
Non-material living standards are intangible, so they aren’t easy to measure. OECD better life index seeks to provide a more holistic picture of true living standards

Question 24

Causes of variations in living standards:

Answer 24

• Abundance of natural resources
  o Affects ability to trade and earn and income
• Government stability
  o In countries with political instability and civil war, producing goods and services becomes secondary
• Labour productivity
  o The amount of goods and services that can be produced affects living standards
  o By providing workers with machines (capital equipment), they can produce better quality goods and services faster
  o Improving skills/education of the labour force also improved productivity
• Employment levels
  o Proportion of those that are employed vs unemployed
  o Increased employment means a country is better off
  o Employment provides people with a means to earn an income to buy goods and services, pay tax, etc

Question 25

What is the lorenz curve

Answer 25

a graph that shows distrubution of income in a country
the further the curve from the line of perfect equality, the more unequal income distribution is.

Question 26

What is the gini co-efficient

Answer 26

uses statistics as an indicator of the degree of income inequality.
0 = perfect equality
1 = perfect inequality

Question 27

Examples of government taxes:

Answer 27

GST - levied of most products bought in Australia.
Excise tax - tax on the producer placed on certain goods.

Question 28

Why is the taxation system important

Answer 28

Redistributing income from the wealthy to the poor.
influences how resources are allocated among competing uses.
regulates economic fluctuations associated with the business cycle.

Question 29

Income tax

Answer 29

paid by all australian’s that generate an income

Question 30

company tax

Answer 30

tax paid by companies based on their total profit

Question 31

gst

Answer 31

paid by australian’s on the purcahse of most goods and services

Question 32

Progressive tax

Answer 32

taxpayers pay the same fraction of their income

Question 33

proportional tax

Answer 33

high income taxpayers pay a larger fraction of their income

Question 34

regressive tax

Answer 34

high income earners pay a smaller fraction of their income

Question 35

Calculating tax

Answer 35

total income - base amount in tax bracket
that number x centres for each dollar
that number + set amount in the bracket

Question 36

calculating tax rate

Answer 36

(tax/income) x100