Economics pt.2

Question 1

consumer sovereignty

Answer 1

the power that consumers as a whole, have to decide what will be produced

Question 2

enterprise

Answer 2

organisational skills needed to produce goods and services

Question 3

interdependence

Answer 3

a system in which people rely on each other to satisfy their wants

Question 4

collective goods

Answer 4

goods and services that are supplied by government for the benefit of the entire country

Question 5

the producers

Answer 5

• supply the goods and services
• use different resources (materials,tools,labour) to deliver goods and services to those that demand them
• consists of various businesses who work cooperatively to produce goods and services
• ensure that the goods and services they want are always available

Question 6

the government

Answer 6

• represents the interests of the community
• provide some goods and services (collective), for for from taxes
• create a stable, efficiently functioning economy (living standards, income distribution, employment)

Question 7

the employees

Answer 7

• people who work for wages or salary (household sector)
• maximise their income but also to gain job satisfaction from the work they do
• more specialised the commercial economy becomes, the better the quality of goods and services and higher standard of living

Question 8

the employers

Answer 8

• people who are in business for profit (producer sector)
• employ workers to maximise profits
• may provide their employees with a pleasant working environment to get the best from them

Question 9

global trade links

Answer 9

linked to the world economy via export sales, generated from foreign exhange earnings

• foreign exchange earnings are funds from other countries as a results of selling the australias goods and services to overseas buyers
• consumers, businesses and government can import and consume overseas produced products (raise standard of living)
• if imports are greater than exports, it creates a negative balance of trade, which can lead to foreign debt

Question 10

economic indicators

Answer 10

statistics or graphs that illustrate trends in a particular aspect of the economy

Question 11

recession

Answer 11

economic downturn - negative growth

• caused by lack of spending, not inability to produce goods
• influenced by the level of economic confidence
• cut back on production and employees lose their jobs
• total spending gall even further as peoples confidence is shaken

Question 12

key features of a recession…

Answer 12

• income and production at lowest
• unemployment at highest
• wages fall or grow slowly
• consumer demand and profit at lowest
• businesses have unused resources & no incentive to purchase
• interest rates remain low
• inflation rate staay low

Question 13

peaks

Answer 13

• production, spending and employment rise.
• consumer and business confidence high
• pushes up prices - inflation
• will eventually bring to end of growth

Question 14

key features of peaks…

Answer 14

• income and production high
• full employment of labour
• wages and salaries high
• business operate at full capacity
• interest rates high
• inflation rises

Question 15

human development index (HDI)

Answer 15

combines life expectancy, educational attainment and income in a single index

Question 16

unemployment

Answer 16

-difficult to make simple comparisons over time because of factors such as participation rate, discouraged workers and creation of new jobs

Question 17

participation rate

Answer 17

the proportion of the working age population who are actually in the workforce

Question 18

monetary policy

Answer 18

using interest rates to exercise control over the economy

Question 19

fiscal policy

Answer 19

using the federal budget to exercise control over the economy

Question 20

rise in interest rates

Answer 20

• effectively slow the economy by discouraging consumers from spending and businesses from expanding
• increase the cost of borrowing = reduces amount of borrowing

Question 21

fixed interest rates

Answer 21

• remain the same throughout the course of the loan

- borrowers know their repayments will remain unchanged

Question 22

variable interest rates

Answer 22

• increases or decreases according to economic conditions

- moves up and down with market interest rates (reserve bank of australia cash rate)

Question 23

long term interest rates

Answer 23

taking a home loan with the interest fixed for 20years (long time)

Question 24

short term interest rates

Answer 24

• borrowing money at an interest rate that can change in the short term (eg car loan - shorter time)
• rates tend to be high than long term rates

Question 25

interest rate

Answer 25

the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding

Question 26

reasons people borrow money

Answer 26

…

Question 27

advantages + disadvantages of fixed interest rates

Answer 27

Advantages

• Borrower will know exactly their payment each month
• Safe guard against rising interest rates in the future

Disadvantages

• Interest rates could possible drop in the future - borrower continues to pay at higher rate
• Harder to obtain from lender due to higher payments

Question 28

advantages + disadvantages of variable interest rates

Answer 28

Advantages

• Lower payments in the short-term
• Good for small loan terms
• Allow you to borrow a larger amount of money if credit is less than perfect

Disadvantages

• Risk that rates will rise could rise during the long-term
• Varying monthly payments
• Might not be able to meet payment obligation due to hikes

Question 29

role of reserve bank of australia

Answer 29

• RBA is the Reserve Bank of Australia and it Australia’s central bank.
• foster financial system stability and promotes the safety and efficiency of the payments system.
• provides selected banking and registry services to a range of Australian government agencies and to a number of overseas central banks and official institutions. -manages Australia’s gold and foreign exchange reserves.

Goals of RBA

• Low inflation
• Keep consumer price index within target range of 2-3% -over the course of economic cycle
• Strong and sustainable economic growth
• Full employment
• Economic prosperity and welfare of people in AU

Question 30

cash rate

Answer 30

Cash rate is the overnight money making interest rate. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. It is the inflation target that is charged on overnight borrowings between financial institutions.

Question 31

current governer of the RBA

Answer 31

Glenn Robert Stevens

Question 32

inflation

Answer 32

a general rise in prices, causing money to lose its value

Question 33

effects of inflation

Answer 33

• decrease in the purchasing power of dollar and its depreciation.
• influences the investments of a country.
• changes the allocation of income.
• leads to a handful of the consumers in making extensive speculation, low consumer confidence

Question 34

hyperinflation

Answer 34

-when the prices of goods and services skyrocket - increase by more than 50% a month.
-Usually due to rapid increase in money supply and unrestrained printing of fiat currency.
Eg. Germany overprinting money due to the costs of WWI

Question 35

stagflation

Answer 35

• slow economic growth, high unemployment accompanied by high inflation
• rising prices & decline in GDP.
  eg. United States in 1970s when world oil prices increased drastically increasing costs of goods and services whilst employment decreased

Question 36

deflation

Answer 36

-decline in prices usually due to reduction of the supply of money or credit.
-Can lead to unemployment and less demand
Eg. Japan in early 1990s when the government tried to lower interest rates to stimulate stimulate inflation

Question 37

ECONOMIC MODEL

Answer 37

…

Question 38

appreciation

Answer 38

an upward movement of the au dollar against another currency

Question 39

specialisation

Answer 39

when people perform one specific job

Question 40

foreign exchange rate

Answer 40

ratio of one currency to another - tells how much a unit of one currency is worth in terms of another

Question 41

balance of trade

Answer 41

difference between the money received by a country when exporting goods and the money paid to other countries when importing goods

Question 42

depreciation

Answer 42

downward movement of the au dollar against another currency

Question 43

foreign exchange market

Answer 43

market determines the price of one currency relative to another

Question 44

consumer price index (CPI)

Answer 44

measures quarterly changes in retail prices purchased by consumers - indicator of inflation rate

Question 45

default

Answer 45

inability to replay borrowed money

Question 46

foreign exchange rate

Answer 46

ratio of one currency to another

Question 47

financial institutions

Answer 47

organisations (banks,insurance,credit unions) which borrow some money from households, firms and businesses and lend it to others

Question 48

business cycle

Answer 48

cyclical fluctuations in the level of economic activity that an economy goes through over time

Question 49

causes of inflation

Answer 49

Demand-pull inflation
- price levels increase because of an unbalance between aggregate supply and demand

Cost-push inflation
- general prices rise due to higher costs of production and increases in wages/ raw materials. Develops due to higher costs of production factors decrease in aggregate supply in the economy. Because of less demand and goods produced, the price of finished goods cause inflation to increase.