QUESTIONS FOR TEST 1 Flashcards
How to find real GDP through nominal GDP and price index
Convert price index to two decimal and divide with nominal gdp
Nominal GDP increases if
if either prices or total production increases
What is the problem with using nominal gdp to measure growth iS
any prices increase during the period will increase GDP
What are non durable goods
Non-Durable goods are those that are consumed quickly after purchase. Non durable goods include food,clothing, and transport. Stickly up to three years
What are durable goods
Durable goods are those that can be expected to last for three or more years such as dishwashers , fridges
What is the largest component of GDP
Consumption
What are services
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
What is trade deficit
Imports are greater exports
What are net exports
The value of goods and services sold overseas minus the value of goods and services brought from over seas
What is a trade surplus
Exports>Imports
Benefits of a trade surplus
Increases real gdp and represents a net injection into the circular flow of income
Negatives of a trade deficit
Decreases real gdp and represents a net leakage from the circular flow of income
What is an import
Goods and services sold to overseas
What is an export
Goods and services bought from overseas
Is Australia in a trade deficit or trade surplus
Australia has been in a trade surplus every year from 2017 -2023
Factors effecting consumption expenditure
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
Why are exports better than imports
Because trading increases GDP because we as a country buy more
Factors effecting investment expenditure
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
Factors effecting net exports
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
Why is Australia inflation rate at 2-3 per cent
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
Why we use Real GDP instead of Nominal GDP
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
