QUESTIONS FOR TEST 1

Question 1

How to find real GDP through nominal GDP and price index

Answer 1

Convert price index to two decimal and divide with nominal gdp

Question 2

Nominal GDP increases if

Answer 2

if either prices or total production increases

Question 3

What is the problem with using nominal gdp to measure growth iS

Answer 3

any prices increase during the period will increase GDP

Question 4

What are non durable goods

Answer 4

Non-Durable goods are those that are consumed quickly after purchase. Non durable goods include food,clothing, and transport. Stickly up to three years

Question 5

What are durable goods

Answer 5

Durable goods are those that can be expected to last for three or more years such as dishwashers , fridges

Question 6

What is the largest component of GDP

Answer 6

Consumption

Question 6

What are services

Answer 6

Are intangible items such as education, health, recreation and utilities , In today’s economy spending on services actually makes up the largest component of consumption, accounting for about 60 per cent of the total

Question 7

What is trade deficit

Answer 7

Imports are greater exports

Question 8

What are net exports

Answer 8

The value of goods and services sold overseas minus the value of goods and services brought from over seas

Question 9

What is a trade surplus

Answer 9

Exports>Imports

Question 10

Benefits of a trade surplus

Answer 10

Increases real gdp and represents a net injection into the circular flow of income

Question 11

Negatives of a trade deficit

Answer 11

Decreases real gdp and represents a net leakage from the circular flow of income

Question 12

What is an import

Answer 12

Goods and services sold to overseas

Question 13

What is an export

Answer 13

Goods and services bought from overseas

Question 14

Is Australia in a trade deficit or trade surplus

Answer 14

Australia has been in a trade surplus every year from 2017 -2023

Question 15

Factors effecting consumption expenditure

Answer 15

The level of disposable income - the actual income received after tax, Medicare levy, superannuation funds. More disposable income, more consumption

Cost of credit - Interest rates influence consumption patterns. Lower interest rates will have a positive effect on aggregate consumption, as interest repayments fall take up smaller part of disposable income

Stock of Household Wealth - Households that hold property or shares tend to feel more wealthy when the value of those assets are rising and thus are more spend on consumer durables. When the value of those assets are declining, may result in households reducing their discretionary spending

Question 16

Why are exports better than imports

Answer 16

Because trading increases GDP because we as a country buy more

Question 17

Factors effecting investment expenditure

Answer 17

Interest Rate - when interest rates are too high, so too are repayments for equipment purchased with borrowed funds

Interest Rates represent opportunity cost - firms have the choice of using money capital for investment or some alternative purpose.

Opportunity cost increases when interest rates increase

Buisness expectations - Managers collect information about which helps them form their view of teh fure such as inquires from buyers, sales levels, currect economic events in their industry.

If expectations

Question 18

Factors effecting net exports

Answer 18

Commodity prices

Exchange rates - When AUD increases in value(apprecaites), the price of imports become cheaper for Australian buyers but makes our exports more in overseas market. When AUD deprecieates more competitvve on in overseas market but imports become more competitive in overseas market but imports become more expensive for Australian buyers

Question 19

Why is Australia inflation rate at 2-3 per cent

Answer 19

Price stability with low rates of inflation. Achieving price stability is important because inflation adversely affects spending power of households and firms, erodes international competitiveness, distorts distribution of income

Question 20

Why we use Real GDP instead of Nominal GDP

Answer 20

We could overstate the true growth rate. Statisticians and economists convert nominal data into real data to remove the impact of inflation price increases and measure the value of output produced