Macroeconomics

Question 1

What does a boom mean for the Eco goals

Answer 1

A boom means low unemployment, high growth and high inflation

Question 2

What does a recession mean for the Eco goals

Answer 2

It means high unemployment, low growth and low inflation

Question 3

What are the five sectors in the five sector circular flow diagram

Answer 3

Household 
Business 
Financial 
Government 
Overseas

Question 4

What is economic activity

Answer 4

Economic activity is an activity by firms, consumers and the government that stimulates economic growth and encourages the growth in employment

Question 5

What are the three types of economic indicators

Answer 5

Lagging-behind
Coincident-present
Leading-future outlook

Question 6

What are the 5 sections of the aggregate demand

Answer 6

C-private consumption
I-private investment
G1-government spending 
G2-government investment
(X-M)- net exports

Question 7

What is C

Answer 7

C is private consumption which is spending by households on needs and wants such as food, clothing, technology and medicine. It is the largest part of aggregate demand

Question 8

What is I

Answer 8

I is private investment and is purchases of goods and capital by the business sector in an attempt to make production easier or cut costs

Question 9

What is G1

Answer 9

G1 is government spending and is the money the government spends on its promises to the voters and the general needs of the community

Question 10

What is G2

Answer 10

G2 is government investment and is government spending on more long term purchases that will benefit he community for many years such as hospitals and infrastructure such as roads

Question 11

What is (X-M)

Answer 11

(X-M) is net exports and is the total amount we export-the total amount we import. It often gives an indication of our relationship with the overseas sector and how much money we loose or gain to foreign economies

Question 12

What are the 5 main government economic goals

Answer 12

1) goal of low inflation
2) goal of full employment
3) goal of strong and stable economic growth
4) goal of external stability
5) goal of internal equity

Question 13

Which 3 goals make up the overall goal of domestic stability

Answer 13

Low inflation
Full employment
Strong and sustainable economic growth

Question 14

What does the goal of low inflation entail

Answer 14

The goal of low inflation is a target set by the govern,net to keep the real rate of inflation at a rate of about 2-3% across the business cycle. This is probably the single most important of the goals

Question 15

What does the goal of full employment entail

Answer 15

The goal of full employment is a goal set by the government which aims to minimise the effect of cyclical unemployment without negatively effecting inflation (non accelerating inflation rate of unemployment). The target is around 4-5%

Question 16

What does the goal of strong and sustainable economic growth entail

Answer 16

The goal of strong and sustainable economic growth is a goal set by the government which aims to create high growth now without negatively effecting the inflation rate or compromising the living standards and outlook of future generations. There is no set target for this goal

Question 17

What are the three components of the aggregate diagram

Answer 17

The first flat bit is the unused resources section where we have extra resources we could use so supply is able to be raised without much inflation. The second is the ideal point and is where we intent to be in the economy. In this second the economy works similar to micro markets. The third is the vertical or no unused resources section. In this section we have no left over resources so attempting to raise supply will only cause inflation

Question 18

How does inflation affect the other Eco goals

Answer 18

1) inflation hampers growth due to the reduced buying power of people
2) inflation raises unemployment as employing people becomes more expensive
3) employment worsens equity as people on fixed wages loose buying power
4) inflation hurts the goal of external stability as it hurts our exports

Question 19

How does unemployment affect the other Eco goals

Answer 19

1) unemployment lowers economic growth as less is produced by having less people working
2) unemployment lowers inflation as there are less people buying the same number of goods
3) unemployment worsens equity as welfare is always lower than a paying job
4) unemployment does not have a set affect on external stability as it changes both x and m

Question 20

How does strong sustainable economic growth affect the other goals

Answer 20

1) higher growth leads to higher inflation as more people have money
2) higher growth leads to lower unemployment as the need for jobs rises
3) higher growth usually leads to better equity however distribution of profits also plays a part
4) economic growth tends to worsen overseas stability as our exports become less stable

Question 21

What are the 4 parts of the business cycle

Answer 21

The first is called a boom and is when the cycle is at its highest point. The second is a contraction and is when the cycle moves from a high to a low. The third is a recession and is when the cycle is at its lowest point. The final is called an expansion and is when the business cycle is moving from low to high

Question 22

What factors affect aggregate demand

Answer 22

1) consumer confidence
2) business confidence
3) overseas sector
4) population growth
5) terms of trade
6) exchange rate
7) credit growth
8) monetary policy
9) budgetary policy
10) household disposable income

Question 23

What are our terms of trade

Answer 23

Our terms of trade are the relative price of our exports compared to our imports. If the global price of coal goes up then no market can choose to pay for cheaper coal because all markets have risen. This mean we make more without producing more. This increases our terms of trade

Question 24

What factors affect aggregate supply

Answer 24

1) bankruptcy rate
2) change in real unit labour costs
3) favourable workplace agreements
4) government subsidises
5) change of minimum working age
6) change in the participation rate
7) change in available resources
8) change in business profit
9) change in interest rates
10) change in exchange rate
11) change in aggregate hours worked
12) change in net skilled migration
13) change in price of materials
14) change in fees and taxes
15) change in productivity
16) change in strike levels

Question 25

What effect does inflation have on the aggregate diagram

Answer 25

Cost inflation changes the supply curve. A raise in cost inflation moves the curve to the left and supply contracts. A lower in cost inflation moves the curve to the right and supply expands

Demand inflation changes the demand curve. Raises in demand inflation will move the curve to the right and lowering demand inflation will move the curve to the left

Question 26

Why is deflation bad

Answer 26

Deflation is bad because people will not spend if they know that the prices of items are going to fall in the future. This means that growth essentially stops

Question 27

How do we measure inflation

Answer 27

Inflation is measured by the CPI which is regimen of about 100,000 goods and services that are monitored and weighted based on their price and relative importance to the household economy. The rate is monitored against a base year

Question 28

What are the 2 measure types of inflation

Answer 28

Headline inflation- which measures all items in the CPI and gives an indication of the changes in many types of products
Underlying inflation- measures the rate of inflation after taking out volatile goods and services that change price regularly. This gives a better indication of the overall inflation trend

Question 29

What are the three measures of economic growth

Answer 29

• GDP
• GPI
• MAP

Question 30

What is GDP and what are its three components

Answer 30

GDP gives a numerical values for the total price of all the stuff we make in our economy. This value is often arbitrary and doesn't really show how we are actually progressing 
It is makes up of 
-GDP(e)- expenditure 
-GDP(i)- incomes 
-GDP(p)- production

Question 31

What are the two types of GDP

Answer 31

The first is regular GDP which is simply the numerical value for all the stuff we make.

The second is called real or chain volume GDP and is a value after taking into account the effects of inflation on the prices

Question 32

What is GPI

Answer 32

GPI is the general price indicator and calculates based off of the GDP but then adds or substances points based on things that we are doing well or badly.

Question 33

What is MAP

Answer 33

MAP is measuring Australia’s progress and gives an indication of our progress based on changes in a total of 26 factors across 4 groups (governance, society, environment and economy) that directly influence our living standards

Question 34

What are the two types of living standards

Answer 34

Material living standards

Non material living standards

Question 35

What are the 5 types of unemployment

Answer 35

• cyclical
• hard core
• structural
• seasonal
• frictional

Question 36

Why is cyclical unemployment

Answer 36

Cyclical unemployment an undesirable type of unemployment caused by contraction in businesses as low points in the business cycle. The governments aim is to remove this

Question 37

What is frictional unemployment

Answer 37

Frictional is a type of unemployment which includes people who are moving between jobs or who have been stood off without pay. This is not a long term type of unemployment

Question 38

What is seasonal unemployment

Answer 38

Seasonal unemployment is a type of unemployment in which a person only works a specific job at a certain time of the year. This only includes people who will go back to that Job

Question 39

What is structural unemployment

Answer 39

Structural unemployment is a type of unemployment where the skills that a worker has is a mismatch for the demands of the employer. This usually occurs during times of great change like during technical innovations

Question 40

What is hard core unemployment

Answer 40

Hard core is a type of long term unemployment in which the person is fundamentally mismatched for a position in the workforce. This is usually due to a problem in attitude or possibly a disability.

Question 41

How is unemployment measured

Answer 41

Unemployment is measure by the unemployment rate which is the proportion of people who are in the labour force but are no currently undertaking payed work

Question 42

What is the labour force

Answer 42

The amount of people who are over the age of 15 who are either working or are actively looking for work

Question 43

What is the participation rate

Answer 43

A percentaged version of the labour force

Question 44

What is an employed person

Answer 44

An employed person is person who is currently undertaking at least 1 hour of payed work a week

Question 45

What is an unemployed person

Answer 45

An unemployed person is a person who currently does not have a job but is actively looking for a job and is willing to start with in the week

Question 46

What relevance do job vacancies have

Answer 46

Job vacancies can give an indication of the tightness of the labour force market. More opportunities means people can’t fill jobs which means that unemployment is low.

Question 47

What is the underutilisation rate (disguised unemployment)

Answer 47

The amount of the labour force that id not working to capacity. This could mean part timers wanting to be full time or people simply wanting to work longer

Question 48

What is hidden unemployment

Answer 48

Hidden unemployment is people who would like to work but have been deterred due to the current state of the labour market