Economics test - Macroeconomics, economic growth, and inflation Flashcards
Macroeconomics definition
Studies the economy as a whole and look at economic indicators
The circular flow model
Is a macroeconomic diagrammatic model that describes the flow of resources, goods and services, and income (real and money) between sectors of the economy such as the household, government, firm, overseas, financial sectors.
Two flows
Real flow and money flow
Real flow
is flow of good and services and resources
Money Flow
is the flow of spending and income
Factor Market
Firms exchange income in return factors of production to households
Microeconomics definition
Refers to individual market
Macroeconomic equilibrium
The sum of all the leakages (S+T+M) in the economy equals the sum of all injections (I+G+X)
GDP def
Measures the total value of all final goods and services produced in an economy in a year
Expenditure method of calculating GDP
AE = C + I + G + (X-M)
Input?
Input refers to the resources or factors of production used in the production of a firm’s output
Income method of calculating GDP
Calculates GDP based on the total earnings of individuals, business and government.
Transfer Payments
Welfares and Grant
Current Expenditure
Spending on public servants
Capital Expenditure
Services like schools, hospitals, roads etc.
Real GDP
GDP adjusted for inflation
Economic growth. Indication?
Increase in the productive capacity of an economy over time. Indicated by increased standard of living.
Economic growth equation
Change in GDP/Original GDP x 100
Factors affecting consumption
Interest rates
Disposable Income
HH Expectations and Confidence
Stock of Wealth
Taxation
Investment affecting factors
Interest rates
Business Confidence and Expectation
Past profits
Taxation
Gvt expenditure factors
Govt policy
Next exports factors
Economic Growth of Trading Partner
Price of commodities
Domestic economic growth
Gov’t policy
Price Stability
Refers to low rates of inflation
Full employment
Occurs when everyone who is willing and able to work can find paid employment.
Standard of living
Material measure
Welfare
Refers to wellbeing and happiness
Aggregate Expenditure
The total planned spending on final goods and services in an economy.
Non-durable goods
Those that are consumed quickly after purchase
Durable Goods. Percentage or spending
Can be expected to last 3 or more years. 10%
Largest component of spending
Services. 70%
Nominal GDP
is the value of output expressed in the prices of the day
Natural Resources are called?
Commodities
Inflation definition
Inflation is the persistent and appreciable rise in the general price of G&S.
CPI
Measures changes in the prices of a basket of goods and services bought by Australian Households
CPI weightings
The goods that are the highest weighting have the highest proportional spending of disposable household income
Headline inflation
Normal inflation, goods with volatile prices are accounted.
Underlying inflation
Removes irregular or extreme price movements
Two types of underlying measures
Trimmed mean and weighted median
Demand pull inflation
Prices can increase when there are high levels of demand but not enough supply
Cost-push inflation
Prices can increase when rising cost of production is pushed to consumers
What is environmental sustainability?
Focuses on the conservation and protection of natural resources and ecosystems.
Social sustainability
Involves a discussion of the distribution of the proceeds of
growth between all individuals and communities
Economic sustainability
Refers to developing a thriving economy that provides long-term and efficient use of resources.
Aggregate production function model
Real GDP on y-axis, labor force on x axis
Labour force
Sum of people in an economy that are able to work
Why does the real GDP not increase exponentially according to the labor force in the APF
Law of diminishing returns
What would happen to the APF model if capital or technology, or education, or quality increases
The curve would move upwards
Sustainable economic growth
Is growth that can be sustained without major economic problems
Unemployment target
5-6%
inflation target
2-3%
Economic growth
4-5%
CPI formula
(CPI 2/CPI 1 - 1) x 100
