Everything Flashcards
What is NAIRU unemployment and what are the four types of unemployment and what do they mean?
Non-accelerating inflation rate of unemployment is a theoretical level of unemployment below which inflation would be expected to rise - contributes to the Phillips Curve
Frictional - It occurs when people voluntarily change jobs. You can’t just regain another job instantly.
Cyclical - The variation in the number of unemployed workers over the course of economic upturns and downturns, such as those related to changes in oil prices or COVID. Unemployment rises during recessionary periods and declines during periods of economic growth.
Structural - Technological changes can lead to unemployment among workers displaced from jobs that are no longer needed. Examples of such changes include the replacement of horse-drawn transport by automobiles and the automation of manufacturing,
Seasonal - Employment is dependent on the season such as farming or outback work
What are the Models used in this exam and what must be noted about them?
Circular Flow of Income Model Multiplier Effect - Multiple injections of expenditure result in an increased price Phillips Curve / NAIRU Model Production Possibility Curve Aggregate Demand and Supply
They are all simplified models to enable understanding and rely on all aother factors remaining unchanged - ‘ceteris paribus’
What is the Economic Cycle and what are its phases? Which phase are we currently in?
Cyclical movement of the business cycle
Generally follows an upward trend
Influenced by aggregate demand and supply
Zone of desired Economic activity - Midway between peaks and troughs as they are unstable and thus a middle ground is necessary
Expansion or Upswing - Economy moving into period of prosperity and healthy business activity + increasing demand and output
Boom or Peak (We are here) - Economy nearing stage where all resources, including labour, are fully employed + High demand causing prices and costs to rise + Full employment and high inflation
Contraction - Productive resources increase in cost causing subsequent rising prices + Reducing demand, aggregate output and income levels
Recession or Trough - Falling expenditure results in production decreases + Income and demand fall + Falling demand results in smaller profits and smaller demand for productive resources + High unemployment, minimal inflation and falling living standards
What are some economists that must be used as a reference?
Joseph Stiglitz, the world renowned Nobel prize winner who recently travelled to Australia, suggested that the federal government should improve their fiscal debt problem by imposing a Windfall tax on energy companies (increased profit tax)
John Maynard Keynes - Paradox of Thrift: Increasing total expenditure injects the economy which can be utilised to generate an exapnsionary phase in the economic cycle
Jim Chalmers is federal treasurer 2022, Josh Frydenburg was 2021
Adam Smith - Laissez Faire, no government intervention and the consumers of the economy will find equilibrium again
How is GDP calculated?
C + I + G + (X-M)
The sum of consumer spending, investments, and government spending added to out net export profits (export profits subtract import costs.
What is Aggregate Demand and Aggregate Supply?
Aggregate demand and supply meet at the potential GDP level
Aggregate demand and supply indicate the demand and supply levels (at a given price) for the total market rather than a specific industry
What are the theories regarding AD/AS
Wealth Effect (supports downward sloped aggregate demand) - Price of Economy is low and GDP expands as everyone has greater buying power CETERIS PARIBUS
Interest Rate Effect (supports downward sloped aggregate demand) - Price of Economy is low so everyone can save more which enables banks to loan out more money at a lower interest rate. Stimulates investments as more people borrow CETERIS PARIBUS
Foreign Exchange Effect (supports downward sloped aggregate demand) - If interest rates are lower than inflation, people will invest in foreign banks so they don’t lose value of their dollar. If more exchange USD to GBP, the supply of USD is high so the USD weakens and becomes cheaper due to a surplus. This surplus creates greater GDP as more buying power from other nations enables greater goods sold domestically CETERIS PARIBUS
What are the causes of inflation?
Cost Push - cost of production increases, increasing the price of a product
Demand Pull - demand increases and people are willing to pay more
How is the unemployment rate calculated and who is considered employed?
Unemployment Rate = (Unemployed/Labour Force) x 100
Workforce = 1HR PAID PER WEEK
What is the difference between Monetary and Fiscal policy?
Monetary policy refers to the actions taken by a country’s central bank to achieve its macroeconomic policy objectives such as the Cash Rate
Fiscal policy refers to the tax and spending policies of a nation’s government
Both policies are used simultaneously
What are the characteristics of a Monetary Policy
Types of Monetary Policy:
Expansionary - Decreasing cash and interest rates, Increases demand and inflation
Contractionary - Increasing cash and interest rates, Decreases demand and inflation
What are the types of Inflation and what do they mean?
Inflation - Rate of increase in price of a basket of goods and services
Deflation - Rate of decrease in price of a basket of goods and services
Hyper Inflation - Inflation occuring at a very high rate’
Stagflation - Persistent high inflation combined with high unemployment and stagnant demand in a country’s economy
Headline Inflation - The raw inflation figure reported through the Consumer Price Index
Underlying Inflation - Removes volatile items with high price fluctuation in the short run from the basket of goods used to measure inflation
What is Australia’s position in the economic cycle?
Australia is currently in the boom or peak phase and may be approaching the contraction or downturn considering we are at relatively low unemployment and extremely high inflation. These characteristics are often present in the peak as they suggest a period of high demand, output, and prices. However, the RBA has been gradually raising the cash rate in recent months (currently at 0.85%) and it is expected to reach 2.1% by the end of 2022 as this intervention works to reduce inflation. Considering that inflation is a lagging indicator, it may be some time for this to take effect. As a result the economy may be soon entering a contraction or period of relatively high prices and low demand due to the increasing interest rates.
What are the Macroeconomic objectives of Sustainable Economic Growth?
full employment; price stability; external stability; sustainable development; and improved living standards
What are the different descriptors / economic indicators?
Leading - Points toward future events
Lagging - Confirms a pattern already in progress
Coincident - Occur in real-time and clarify the state of the economy
What is short run AS and long run AS?
Short run AS - a period in which stickiness of wages and prices may prevent the economy from operating at potential output—helps explain how deviations of real GDP from potential output can and do occur.
Long run AS - When the economy achieves its natural level of employment, it achieves its potential level of output. We will see that real GDP eventually moves to potential, because all wages and prices are assumed to be flexible in the long run.
