Influences on economy and aggregate expenditure Flashcards
What is Aggregate expenditure?
the total amount of spending that helps boost economic growth.
AE formula
G(government)+I(investments)+C(Consumption+(X(exports)-M(imports))
Who influences the economy?
The government and the RBA are the two sectors that influence the economy.
A country’s GDP will grow over time how?
Population Growth
Resource development
Technological change
Increase in productivity
Business Cycle
Business cycle is the model economists refer to when describing short term fluctuations in economic activity.
Business cycle phases
Expansion, growths a healthy 2% to 3%.
Contraction, Economic growth, slows but isn’t negative.
Peak, Grows more than 3%.
Trough, Economy contracts, which signals a recissions.
Recession
Two consecutive quarters of negative economic growth.
What does the federal government estimate
Federal Government estimates government revenue (receipts of tax collected) and the cost of expenditure (spending payments) plans for the coming in the year.
3 Types of Budgets
Balanced Budget = Government revenue is equal to government expenditure.
Budget surplus = Government revenue is more than government expenditure.
Budget deficit = Government revenue is less than government expenditure.
Purpose of federal budget
Redistribute income from the wealthy to the less wealthily.
What are the purposes of the economic indicators, what are they and what do they aim to achieve
Stabilise business cycle by achieving sustainable growth
Target GDP of 3-4%
Target Unemployment rate of 5-6%
Target inflation rate of 2-3%
These can be used to stimulate or slow down economic growth
Fiscal Policy
Fiscal policy is the manipulation of taxation and government spending done by the government through their budget to stabilise the economy.
3 stances of fiscal policy
Contractionary stance: Increase taxes and decrease government spending.
Expansionary stance: Decrease taxes and Increase government spending.
Neutral stance: taxes and government spending stay the same
