Macroeconomics Flashcards
What does a boom mean for the Eco goals
A boom means low unemployment, high growth and high inflation
What does a recession mean for the Eco goals
It means high unemployment, low growth and low inflation
What are the five sectors in the five sector circular flow diagram
Household Business Financial Government Overseas
What is economic activity
Economic activity is an activity by firms, consumers and the government that stimulates economic growth and encourages the growth in employment
What are the three types of economic indicators
Lagging-behind
Coincident-present
Leading-future outlook
What are the 5 sections of the aggregate demand
C-private consumption I-private investment G1-government spending G2-government investment (X-M)- net exports
What is C
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
What is I
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
What is G1
G1 is government spending and is the money the government spends on its promises to the voters and the general needs of the community
What is G2
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
What is (X-M)
(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
What are the 5 main government economic goals
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
Which 3 goals make up the overall goal of domestic stability
Low inflation
Full employment
Strong and sustainable economic growth
What does the goal of low inflation entail
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
What does the goal of full employment entail
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%
What does the goal of strong and sustainable economic growth entail
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
What are the three components of the aggregate diagram
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
How does inflation affect the other Eco goals
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
How does unemployment affect the other Eco goals
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
How does strong sustainable economic growth affect the other goals
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
What are the 4 parts of the business cycle
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
What factors affect aggregate demand
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
What are our terms of trade
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
What factors affect aggregate supply
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
