Exam 2

Question 1

Retail markets

Answer 1

businesses supplying goods and services to (end) consumer who demand the products

Question 2

Labour markets

Answer 2

employers demanding workers and employees supplying labour

Question 3

Financial markets

Answer 3

financial institutions such as banks supplyling loans to customers who demand funds for large purchases at a cost of interest.

Question 4

Stock markets

Answer 4

Buyers demanding and sellers supplying shares on the securities exchange

Question 5

Factors that increase supply

Answer 5

Increased, number of suppliers, efficiency, climatic conditions and fall in cost of production

Question 6

Factors that cause a decrease in supply

Answer 6

Decreased efficiency, number of suppliers, unfavourable climate conditions and increase in the cost of production

Question 7

Increase in supply

Answer 7

Shift to the right

Question 8

Decrease in supply

Answer 8

Shift to the left

Question 9

Reasons for increases in demand

Answer 9

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.

Question 10

Reasons for decreases in demand

Answer 10

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.

Question 11

Increase in demand

Answer 11

Shift to the right

Question 12

Decrease in demand

Answer 12

Shift to the left

Question 13

Price mechanism

Answer 13

So, the price mechanism refers to the forces of demand and supply in determining the price and quantity
of a good or service.

Question 14

Contraction features

Answer 14

Falling levels of production
Decreasing consumer spending
The rate of inflation falls
Wages fall
Intrest rates fall
Unemplyoment rises

Question 15

Expansion features

Answer 15

Rising levels of production
Increased consumer spending
Inflation rises
Wages rise
Interest rates rise
Unemployment falls

Question 16

Recessions/trough

Answer 16

• 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.

Question 17

Booms / Peak

Answer 17

• 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.

Question 18

RBA

Answer 18

Reserve bank of Aus
Increased interest rates at Boom

Question 19

The role of the government in protecting consumers

Answer 19

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.

Question 20

The formula for I and L

Answer 20

• 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.

Question 21

Overseas sector

Answer 21

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.

Question 22

The government sector

Answer 22

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.

Question 23

The financial sector

Answer 23

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.