outcome two Flashcards
factors that affect living standards
access to goods and services
enviornmental quality
physical and mental health
crime rates
literacy rates
define GDP and real GDP
gdp: total amount of production in an economy over a period of time
real gdp: amount of production with the impact of inflation removed
describe each flow of the circular flow of income
Flow one: resources of production are provided to businesses (land labour capital)
flow two: income is given to households in return for resources of production
flow three: income is spent on final goods and services, or dispensed as leakages or injections:
(STM and IGX)
Savings → investment,
Taxes → government spending
Import spending → export spending
flow four: total value of goods and services produced by businesses over a period of time
define AD + factors
total expenditure on final australian-made goods/services
disposable income
interest rates
consumer confidence
business confidence
the exchange rate
rates of economic growth overseas
define AS + factors
total amount of goods and services that suppliers have produced over a period of time
quantity and quality
costs of production
technological change
productivity growth
exchange rates
climatic conditions
strong and sustainable economic growth target
3-3.5%
consequences of not achieving strong and sustainable economic growth
environmental degradation, high inflation if growth is too high, and high unemployment if growth is too low
Natural rate of unemployment/NAIRU
the rate of unemployment that exists when economic growth is relatively strong and sustainable
full employment + goal
the rate at which there is no cyclical unemployment
Goal: 5%
employed
working either fulltime or part time for more than one hour per week, aged over 15
unemployed
actively looking for work, able and willing to take up a job
frictional unemployment
a person is unemployed for a period of time while moving from one job to another - this unemployment is not of concern to the government
hidden unemployed
people who would like work but are discouraged from seeking jobs
underemployed
individuals have jobs but are not working to the capacity that they’d like
long-term unemployed: when the duration of job search is a year or more
structural unemployment + causes
the skills of the unemployed dont match the skills required
causes: changing tastes, new technology
cyclical unemplyment
unemployment that occurs when the economy is not operating at its full capacity due to a deficiency in AD
consequences if unemployment is too high
reduction in living standards, greater income inequality
goal of low and stable inflation (price stability)
sustained increase in the average price level of goods and services in an economy over time
goal: 2-3%
disinflation
fall in the rate of inflation, prices still increase but not as rapidly
measurement of the inflation rate + headline and underlying inflation rate
Consumer Price Index (CPI), it determines the change in the prices of goods and services purchased by a household
headline inflation: figure that captures the price movements of all goods and services contained in the CPI
underlying (core) inflation: price movements of domestic products
deflation
sustained decrease in general level of prices
demand inflation + causes
caused by increase in AD and leads to strong AD spending
causes: rises in disposable income, strong consumer confidence, lower interest rates
cost inflation + causes
caused by reduction in AS
causes: high wages, decreased technological change, deteriorating climactic conditions
consequences of high inflation
erosion of purchasing power, lower return on investments, loss of international competitiveness
