Managing the Australian Community

Question 1

How money moves around the circular flow

Answer 1

□ Households
- Households contribute to an economy by working (giving away time and labour) and by buying products (giving away money). In return, households consume products and utilize government programs.
□ Firms
- Firms supply both intermediate and final goods and services available in the economy, while demanding the factors of production which they must consume in order to produce those goods and services. In exchange for the goods and services they produce, they receive payments which are collectively called revenue.
□ Leakages/injections
- Financial Sector
◊ Banks and other financial institutions.
- Government Sector
◊ Governments collect taxes from households (households pay tax to the government). The government then spends money in the economy in many ways, including unemployment benefits and infrastructure spending.
- Overseas Sector
◊ The overseas sector is responsible for exporting and importing goods, and facilitating an exchange of money between the domestic economy and the rest of the world.
Outline the Business Trade Cycle and identify the 4 main phases of the BTC

Question 2

BTC

Answer 2

A model that represents the alternating periods of expansion and contraction in economic activity relative to the trend in the economic growth rate that the economy experiences over time.

Question 3

Peak

Answer 3

◊ Economic growth is high (and peaking)
◊ Inflation is high
◊ Unemployment is low
◊ Consumer and business confidence is high

Question 4

Downswing/contraction

Answer 4

◊ Economic growth is decreasing - may go into negative economic growth
◊ Unemployment rates are increasing
◊ Business and consumer confidence is lower
◊ Interest rates decrease

Question 5

Trough

Answer 5

◊ Economy is in a slump – low levels of economic growth
◊ Business and consumer confidence is low
◊ Low inflationary pressure
◊ Unemployment rates are high

Question 6

Upswing/contraction

Answer 6

◊ Economic growth is increasing
◊ Unemployment rates are falling
◊ Interest rates increase
◊ Inflation increases

Question 7

Economic Indicators

Answer 7

• Indicators used to describe the different phases of the business cycle
• Statistical measures used to measure the growth or contraction of the economy as a whole or sectors within the economy, as well as to forecast financial or economic trends

Question 8

GDP Growth Rate

Answer 8

• Measures the changes in the production capacity of an economy over time
  ◊ If GDP is growing, then there is economic growth (Positive GDP growth rate)
  ◊ GDP refers to the total value of all final goods and services produced within a country over a period of time
• Trend
  ◊ Stagnant from around 2.6% from 2015-2019
  ◊ In 2020, there was a very significant drop from 2% to about -6% at its lowest
  ◊ Peaked to about 10% in 2021
  ◊ Growth slowing due to rise in inflation and interest rates
• What it means
  ◊ From 2015-2019, economic growth was slow but consistent
  ◊ In 2020, COVID-19 caused widespread restrictions, which reduced economic activity
  ◊ Australia is since starting to see economic recovery as states reopened and aggregate demand increased

Question 9

Inflation Rate

Answer 9

• Measures the changes in general price levels over time
  ◊ Inflation Refers to a persistent increase in general price levels within an economy over a period of time
  ◊ Calculated using a basket of goods that represent household spending.
• Trend
  ◊ Has risen slightly from around 1.2% in 2015 to 2.2% in 2019
  ◊ In 2020, there has been a significant drop to about -0.2%
  ◊ Has risen significantly to 7.8% end of 2022
  ◊ On way to recovery
• What it means
  ◊ From 2015-2020, economic growth was slow but consistent
  ◊ In 2020, COVID-19 has influenced confidence and spending, so inflation has fallen.
  ◊ Disruptions in supply chain, natural disasters, stimulus payments and the Russian-Ukrainian has helped cause the sharp rise

Question 10

Unemployment Rate

Answer 10

• The percentage of people who are unemployed within the labour force (people who are willing and able to work)
  ◊ A person is considered unemployed when they are willing and able to work and but are not in paid work for at least an hour a week
• Trend
  ◊ Fell from around 6% in 2016 to about 5% in 2019
  ◊ During 2020, there was a very significant increase to about 7.5%
  ◊ Has fallen to about 3.5% in 2023
• What it means
  ◊ From 2015-2019, economic growth meant that jobs were being created and filled
  ◊ In 2020, COVID-19 caused widespread restrictions, which reduced economic activity and thus employment
  ◊ Australia is since starting to see economic recovery as states reopened

Question 11

Australia’s position in the BTC

Answer 11

□ Downswing
□ Falling GDP and increasing unemployment
□ High inflation but this is because of external supply shocks (high oil price caused by Ukraine war)

Question 12

3 Main Australian Government Economic Objectives

Answer 12

□ Sustainable economic growth:
- Refers to stable economic growth that can be sustained over the long term
- Economic growth refers to the growth in the production capacity of an economy over time
- Usually measured in terms of GDP growth
- Target range: 3-4% GDP growth rate per annum
□ Price stability:
- Where prices are stable and not fluctuating
- Is indicated by the inflation rate
- Inflation refers to a persistent increase in the general price levels within an economy over a period of time
- Target range: 2-3% rate of inflation per annum
□ Full employment:
- Where everyone willing and able to work can find employment
- When cyclical unemployment is zero
- A person is considered unemployed when they are willing and able to work but are not in paid work for at least an hour a week
- Estimated by a target rate of 5% unemployment rate

Question 13

Extent that Australia Achieves Government Objectives

Answer 13

□ Moderate extent
- Full employment is good because there is a tight labour market
- Price stability
◊ Not achieved
◊ External supply shocks increased input costs across economy
◊ Globally high inflation - tradable inflation
- Economic growth is falling because falling consumption and investment right about by high interest rates

Question 14

5 Key Aims of 2023/2024

Answer 14

□ Delivering cost-of-living relief
□ Strengthening Medicare
□ Stronger and more secure economy
□ Broadening opportunity
□ Strengthening the Budget and funding our priorities

Question 15

How the government changes revenue and/or spending in an attempt to impact the economy

Answer 15

□ Change taxes
□ Provide stimulus packages to businesses
□ Give subsidies/grants
□ Increase transfer (Welfare) payments to households

Question 16

3 Specific Government Policies

Answer 16

• The Australian budget policies of growing the economy, strengthening the budget, and strengthening Medicare are designed to address the government objectives of sustainable economic growth, price stability, and full employment. The policies aim to encourage business and consumer spending, which in turn generates economic activity and employment. This includes tax cuts for small businesses, infrastructure investments, and incentives for research and development. By increasing economic activity, the policies aim to boost GDP.
• Strengthening the budget is essential for price stability. The budget policies aim to reduce expenditure, increase revenue, and eliminate wasteful spending. This is done to maintain a balanced budget, which ensures a stable economic environment that is less prone to inflation.
• Strengthening Medicare is essential for full employment. The policies aim to increase access to healthcare services, which leads to a healthier workforce. This leads to increased economic growth and employment. By investing in healthcare, the policies aim to promote full employment and reduce unemployment rates.
• Overall, the policies encourage economic activity, stabilizing the budget, and investing in healthcare. The policies are not specifically targeting a reduction in inflation or an increase in economic growth. Instead, they are designed to promote a stable economic environment that is conducive to sustained economic growth, price stability, and full employment.
  Discuss the positive and negative impacts of budget objectives on stakeholders in the economy

Question 17

Positive Impacts of Objectives

Answer 17

• Sustainable Economic Growth
  ◊ It leads to higher wages and better working conditions, providing better opportunities for investors and stakeholders.
• Price Stability
  ◊ Price stability is beneficial to consumers as they can purchase goods and services at predictable prices, leading to stable and consistent consumption.
• Full Employment
  ◊ Full employment leads to a strong and stable economy with low unemployment rates. It also promotes increased consumer spending, better government revenue collections, and higher tax revenues.

Question 18

Negative Impacts of Objectives

Answer 18

• Sustainable Economic Growth
  ◊ Achieving sustainable growth may require investment in costly technologies, which could potentially lead to increased costs for businesses and difficulty in accessing finance or credit.
• Price Stability
  ◊ Price stability could lead to disinflation, deflation, or inflationary pressures, which could lead to adverse impacts on consumers and businesses such as job losses and lower business activity.
• Full Employment
  ◊ Full employment may lead to wage inflation as the demand for skilled workers increases. This could lead to increased costs for businesses, which could negatively impact organizations’ profitability.