Marco (Low inflation, Sustainable Eco Growth, Full Employment)

Question 1

Benefit of using GDP as a measurement of economic activity

Answer 1

GDP is widely used in different parts of the world which gives economists the ability to compare countries growth rates.

Question 2

Benefit of using GPI as a measurement of economic activity

Answer 2

GPI measures material and non-material living standards which gives a better idea of economic wellfare

Question 3

Benefit of using MAP as a measurement of economic activity

Answer 3

Gives a good explanation of “is life in Australia getting better?” as GDP and GPI don’t really account for Australia’s well-being.

Question 4

Coincident Indicators

Answer 4

Coincident indicators reflect more closely with the actual level of economic activity. They are published regually at short intervals to tell us what is happening now. e.g changes in retail sales

Question 5

Cost Inflation

Answer 5

Exists when firms increase prices due to an increase in costs

Question 6

Cyclical unemployment

Answer 6

Cyclical unemployment is the loss of jobs due to weak aggregate demand side conditions, a lack of AD and a downturn in economic activity or recession.

Question 7

Demand Inflation

Answer 7

Occurs in a boom when demand overtakes supply and there is a shortage

Question 8

Disguised Unemployment

Answer 8

Part time workers who would prefer to be full time.

Question 9

Four key indicators of performance (MAP)

Answer 9

Society, Economy, Environment and Governance.

Question 10

GDP

Answer 10

Gross Domestic Product is an estimate of the level of economic activity. It represents total annual value of goods and services produced by a nation.

Question 11

GDP is averaged between…

Answer 11

GDP(E) -Expenditure on G/S, GDP(I) - Income, GDP (P) - Total G/S Production

Question 12

GPI

Answer 12

Genuine Progress indicator uses GDP data, but makes both negative and positive adjustments to reflect the good or bad effects on society, welfare of different types of activity and spending. e.g environmental damage, road accidents, family breakdown, volunteer work and DIY housework.

Question 13

Headline CPI

Answer 13

Consumer Price Index is a measure of inflation or the average level of prices of a basket of goods and services purchased by typical metropolitan households.

Question 14

Hidden Unemployment

Answer 14

Individuals who would like a job or would like to work more hours (however discouraged for various reasons and therefore have left the labor force). These people are not actively looking for work, therefore are not recorded.

Question 15

How can a decrease in the participation rate lead to a decrease in unemployment?

Answer 15

When those unemployed stop looking for work.

Question 16

How can deflation have an adverse effect on the economy?

Answer 16

Consumers stop spending as they could buy the item cheaper in the future.

Question 17

Labor Force

Answer 17

The Labor Force includes people over 15 years old who are either employed or unemployed.

Question 18

Leading Indicators

Answer 18

Leading Indicators allow economic forecasts or predictions to be made about the likely future level of economic activity. e.g housing approvals, business confidence, consumer sentiment.

Question 19

Limitation of using CPI as a measurement of inflation

Answer 19

Weighting of items may be inappropriate and unreflective for some households. e.g meat inflation for a vegetarian household.

Question 20

Limitation of using GDP as a measurement of economic activity

Answer 20

GDP does not include non market activities such as volunteer work and illegal production.

Question 21

Limitation of using GPI as a measurement of economic activity

Answer 21

Deductions and additions are subjective. e.g environment may not be as important to certain people.

Question 22

Limitation of using MAP as a measurement of economic activity

Answer 22

Measures are subjective, based on personal opinions and preferences.

Question 23

MAP

Answer 23

Measuring Australia’s Progress involves using a range of measures of progress to build up a picture of changes in our material and non-material well-being.

Question 24

NAIRU

Answer 24

Non-Accelerating Inflation Rate of Unemployment, that is unemployment that is not low enough to cause inflation.

Question 25

Natural Unemployment

Answer 25

Natural Unemployment of perhaps around 4.5-5 percent is unavoidable, even in a healthy economy. it occurs due to the existence of structural (new technology), frictional (time spent transitioning), hard-core (criminal record) and seasonal factors.

Question 26

Participation Rate

Answer 26

Participation Rate represents the proportion (%) of those people aged 15 years and over who are members of the labor force; that is employed and unemployed. (Excludes retirees and those unemployment who are not looking for a job.)

Question 27

Regimen

Answer 27

The regimen refers to the range of goods and services included in the basket whose prices are to be measured.

Question 28

The Goal of Full Employment

Answer 28

The goal of full employment refers to a situation , which an acceptable number of people are unable to find a job ( in Australia this is around 4-5%), where unemployment is at its lowest attainable level with zero cyclical unemployment, and without inflation going beyond its target zone.

Question 29

The Goal of Low Inflation

Answer 29

The economic goal of low inflation is where inflation (a sustained increase in the general price level) is kept within the target band of 2-3 percent over the course of the business cycle, as measured by the Consumer Price Index (CPI)

Question 30

The Goal of Sustainable Economic Growth

Answer 30

The economic goal of sustainable economic growth refers to a sustainable increase in the volume of goods and services produced from one year to the next; meaning that the achievement of economic growth should not come at a cost to other economic goals and living standards, as measured by Gross Domestic Product (GDP)

Question 31

Underemployment

Answer 31

Highly skilled workers in low skill/paying jobs.

Question 32

Underlying Inflation Rate (CPI)

Answer 32

The underlying inflation rate is measured by removing volatile items affected by one off events, such as fresh food and fuel from the normal CPI regimen in order to obtain an inflation rate that is more truly reflective of ongoing changes in the levels of prices.

Question 33

Underutilisation rate

Answer 33

The underutilisation rate combines the unemployment rate and underemployment rate into a single figure that represents the percentage of the labor force that is willing and able to do more work

Question 34

Unemployment

Answer 34

Unemployment is when those aged 15 and over who are actively looking for work and cannot find a job.

Question 35

Lagging Indicators

Answer 35

Lagging indicators show changes in economic activity some time after the event has occurred because they take time to respond. e.g GDP

Question 36

GDP per capita

Answer 36

Real GDP per capita refers to the volume and quantity of goods and services produced per head of population per unit of time. (alternate measure of growth)

Question 37

Recession

Answer 37

An economy is said to enter a recession when the real value of production falls in at least two successive quarters (six months)

Question 38

How to calculate the unemployment rate

Answer 38

unemployment rate = unemployed/labor force x 100

Question 39

Those not in the labor force

Answer 39

``` Retired Stay at home parents Full time students Elderly Prisoners Disabled Discouraged worker ```

Question 40

Limitations of measuring the cyclical unemployment rate

Answer 40

Excludes two major groups which would make our unemployment rate much higher; hidden employment and disguised/underemployment Many people lie and say they are looking for work out of fear of losing benefits