Exam 2 Flashcards
Retail markets
businesses supplying goods and services to (end) consumer who demand the products
Labour markets
employers demanding workers and employees supplying labour
Financial markets
financial institutions such as banks supplyling loans to customers who demand funds for large purchases at a cost of interest.
Stock markets
Buyers demanding and sellers supplying shares on the securities exchange
Factors that increase supply
Increased, number of suppliers, efficiency, climatic conditions and fall in cost of production
Factors that cause a decrease in supply
Decreased efficiency, number of suppliers, unfavourable climate conditions and increase in the cost of production
Increase in supply
Shift to the right
Decrease in supply
Shift to the left
Reasons for increases in demand
Rise in consumer income, changes in consumer tastes, increase in population, sub good becomes more expensive, complementary good becomes cheaper, prices expected to rise in the future.
Reasons for decreases in demand
Fall in consumer income, changes in consumer tastes, decrease in the size of the population, sub good becomes cheaper, complimentary good becomes expensive, prices to fall in future.
Increase in demand
Shift to the right
Decrease in demand
Shift to the left
Price mechanism
So, the price mechanism refers to the forces of demand and supply in determining the price and quantity
of a good or service.
Contraction features
Falling levels of production
Decreasing consumer spending
The rate of inflation falls
Wages fall
Intrest rates fall
Unemplyoment rises
Expansion features
Rising levels of production
Increased consumer spending
Inflation rises
Wages rise
Interest rates rise
Unemployment falls
Recessions/trough
- Income and production are at their lowest level in the business cycle.
- Unemployment is at a high level.
- The inflation rate tends to stay low.
- Wages and salaries either fall or grow very slowly.
- Consumer demand and, consequently, business sales and profits reach their lowest levels.
- Bankruptcies are everyday occurrences and the business outlook is bleak.
- Businesses have a lot of unused resources and no incentive to purchase new machinery.
- Interest rates remain low, while investment opportunities are few and the number of creditworthy
borrowers is reduced.
Booms / Peak
- Income and production are at their highest levels.
- There is full employment of labour and all other resources.
- Wages and salaries are relatively high. Employees are now in a strong bargaining position as
businesses compete for scarce labour resources. - Businesses are operating at full capacity. Increases in consumer demand are met by increases
in prices rather than by increases in production. - Interest rates are high because loanable funds are in relatively short supply.
- The rate of inflation rises sharply.
RBA
Reserve bank of Aus
Increased interest rates at Boom
The role of the government in protecting consumers
The government has a significant role in the financial protection of consumers through the regulation of the financial sector. The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth Government body responsible for the regulation of the financial sector. It operates under the Corporations Act 2001 (Cwlth) and the National Consumer Credit Protection Act 2009 (Cwlth).
Increase or decrease economic activity
Its main roles are:
* monitoring the financial services industry
* monitoring the provision of financial services such as investment advice
* Provide consumer protection in financial services, including shares, managed funds, superannuation, insurance, credit and deposit-taking.
The formula for I and L
- When injections are greater than leakages, economic growth occurs and the economy will expand.
- When leakages are greater than injections, an economy will experience economic decline.
It is the government’s role to try to manage and maintain a balance within their nation’s economy by
altering flows of money and influencing decisions within sectors.
Overseas sector
A more complete approach to understanding economies occurs when we also consider the overseas sector.
This macroeconomic model details global (macro) influences upon a nation’s economy and successfully
explains the role of trade in helping an economy grow. Trade consists of exports and imports.
Exports (X) refers to Australian businesses selling their goods or services to overseas individuals,
businesses or governments. These are an injection into the circular flow of income.
Imports (M) refers to the buying of overseas goods or services by Australians. These are a leakage from
the circular flow of income.
The government sector
The government sector refers to local, state and federal governments and has two significant roles in the
circular flow of income:
1. Taxation (leakage): the government collects taxes from individuals and businesses when they earn an
income or profit.
2. Government expenditure (injection): this is when governments spend money raised through taxation on
things such as infrastructure, welfare payments, education and health.
The financial sector
The financial sector refers to financial institutions such as banks that act as intermediaries between the
savers and borrowers in an economy. They receive the savings of individuals and businesses and then lend
this money to others who need to borrow money.
A choice of saving or investment is an important factor within the economy. Saving (S) refers to putting
money away for later use and is a leakage from the circular flow of income, whereas investment (I) is when
money is borrowed and used to expand and grow a business. This means investment is an injection into the
circular flow of income.
