Role of Gov't

Question 1

why is the reallocation of resources important?

Answer 1

so that market inefficiencies can be addressed where supply and demand meet at a reasonable price

Question 2

what is the result of not relocating resources?

Answer 2

Many socially desirable G & S will not be produced or are underproduced because- lack of profit, too expensive or complex to provide.
eg schools, hospitals, defence / border protection, social housing, roads, street light and other infrastructure, etc Public Goods & services

Question 3

what can the govt do about the issue of relocating resources?

Answer 3

Laws eg illegal to…
Legislation eg to ensure health and safety
Use incentives (eg tax incentives, advertising etc) to ensure something required is supplied
Provide the goods and services (eg via Budget expenditure) eg
Subsidise another ‘body’ to provide the good / service

Question 4

What are Private G or S + examples

Answer 4

Are rivalrous (depletable) and excludable in consumption
eg a milkshake purchased from a shop
(i.e.Purchase & consumption by one person reduces the amount available for another person & a person can be legally stopped from consuming it if they didn’t pay for it).

Question 5

What are Public G or S + examples

Answer 5

are non-excludable and non-rivalrous (non-depletable) in consumption.
A person who does not pay for the good (or service) cannot be excluded or stopped from consuming it and one person’s enjoyment/ consumption does not lesson another’s enjoyment.
Examples of public goods:
A lighthouse, Police force, streetlights, footpath, prisons, border control,

Question 6

Problem: a person can use the G or S without paying for it (free rider problem). Where is the incentive for suppliers to offer it in the market? Is this fair?

Answer 6

The free rider problem can lead to another problem.

Under allocation of resources to the production of the good or service where the producer cannot charge all users.

Question 7

what is the key role of govt?

Answer 7

A key role of the Gov’t is to provide public goods in a free-market economy where the benefits associated with the provision of the G /S outweigh the costs.

Question 8

How might they ensure the public good/service is provided or produced?

Answer 8

Government subsidies: (eg a direct cash payment to private business to provide/ produce)
-Full govt responsibility: eg national defence, prisons, police force, schools lighthouses). Paid via Gov’t revenue sources such as income tax.

Question 9

Q: In a free market, there is also the problem of G & S being produced that are not beneficial to society eg illicit drugs. What could a Gov’t do about this issue?

Answer 9

implement legislations + restrictions around that product so that people are deterred from purchasing it

Question 10

what are non excludable resources?

Answer 10

Non-excludable- anyone can utilise these resources without having to pay for them

Question 11

what does it mean when companies in rivalrous in consumption?

Answer 11

They are rivalrous in consumption- this means that when someone consumes it it reduces or affects the consumption of it by others

Question 12

CARS are defined as those natural resources, like fisheries, forests, clean air- which are likely to be exploited and degraded over time unless the government steps in to safeguard these resources for long term use.
Without Gov’t intervention, depletion would occur rapidly. Why?

Answer 12

Main reason is that consumers (including businesses) have relatively free access and cannot be easily excluded from their use. This encourages consumption and eventual depletion.
Thus, CARS are not owned by anyone, so they don’t usually have a market price.

Question 13

how does the govt make sure the economy is stabilised?

Answer 13

Governments try to reduce the size of economic downturns/ booms i.e the level and pace of economic activity and try to meet their economic goals and of course- maintain and improve the wellbeing of the nation.

Question 14

what are the 4 main phases economy activity

Answer 14

Over time, economic activity moves in a cyclical pattern and has four main phases.
The expansion (recovery) phase- features?
The peak (boom) phase- features?
The contraction (slow down)phase- features?
The trough (recession, depression)phase-features?

Question 14

what are the key features of the expansion phase?

Answer 14

Focusing on interest rates and capital expenditure
last 4-5 yrs but can be more or less moving from a trough to a peak

Question 14

what are the key features of the peak phase?

Answer 14

after contraction phase
GDP and per capita income subsequently decline, unemployment ticks up, and stock market indexes trend downward.

Question 15

what are the key features of the contraction phase?

Answer 15

measured in terms of a country’s real gross domestic product
economy in decline

Question 16

what are the key features of the trough phase?

Answer 16

marked by two quarters of negative GDP growth
employment and output falls
lower priced items outperform

Question 17

the business cycle?

Answer 17

see slide 10 of role of govt ppt
trough - expansion - peak - contraction - growth

Question 18

what a recession?

Answer 18

high unemployment rate where economy is contracting rather than expanding

Question 19

factors what govt uses to smooth out fluctuations in economic activity?

Answer 19

1. Unemployment (Chapter 1.3)
2. Economic Growth (Chapter 1.2)
   Also
   Consumer & business confidence (1.6)
   Retail sales/ new car sales
   Other - TBC

Question 20

what is the govts goal of full employment

Answer 20

The government’s goal of full employment actually refers to an unemployment rate of about 4.5% not zero.

Question 21

when is full employment achieved?

Answer 21

Full employment is generally regarded as that level of unemployment that exists when the government’s
economic growth objective (3-4%GDP) is achieved and where cyclical unemployment is non-existent.

Question 22

why do people work?

Answer 22

Some reasons why people work- some ideas include:
To earn an income
Contributing to society
Social/relationships
Fun and interesting

Question 23

why don’t people work?

Answer 23

Some reasons why people don’t work:
Can’t find work
Location
Wrong skills
Language issues
Automation
Wrong season
Discrimination

Question 24

define unemployment

Answer 24

Unemployment is a situation where people who are willing and able to work are unable to find employment.

Question 25

define the 4 categories of natural unemployment

Answer 25

Structural
Seasonal
Frictional
Hard-core

Question 26

what are the Hidden unemployed

Answer 26

sometimes people may have been unemployed but give
up looking for work. They are not in the labour force any more
and are called the Hidden unemployed.

Question 27

what are the impacts of unemployment?

Answer 27

deteriorating living standards- what does this mean?
decreased national production- explain
changed government budget position: not only does the Government have to outlay or spend more on social welfare but their revenue falls

Question 28

Why does Government revenue (ie gov’t income) also fall because of unemployment? Explain

Answer 28

less taxes + more people for them to look after bc they public has no money

Question 29

ABS Definition of unemployed persons:

Answer 29

aus bureau of statistics
Aged over 15 years who were not employed

Question 30

define labour force

Answer 30

Those people aged15 and over who are willing and able to work; it includes the employed and unemployed.

Question 31

what is the criteria to be considered employed?

Answer 31

People working more than 1 hour a week are not considered as unemployed!!!!!!!!!!

Question 32

how do we calculate the unemployment rate?

Answer 32

unemployment rate = Number of people unemployed / Total number of people in the labour force x100

Question 33

what does the participation rate + formula?

Answer 33

Participation rate: This refers to the the % of the population aged over 15 who are eligible to be in the labour force
Calculated by: LF/population aged over 15 x 100

Question 34

what does the underutilisation rate + formula?

Answer 34

Underutilisation rate: Refers to the number of people who are unemployed or underemployed as a % of the labour force
Unemployed + underemployed
Labour force x100

Question 35

reasons for cyclical unemployment

Answer 35

Corona virus-Borders have been closed (tate and National)
A number of major industries have had to close down or severely disrupted- (tourism, hospitality, education especially international students, retail, aviation industries)
Lockdowns of non-essential business eg restaurants, clothing shops etc or are very restricted in what they can do, workers have been told to work from home if they can, schools closed. Business have ‘stood down/laid off’ workers and more.
Incomes have been slashed for millions of Australian workers. As income falls and workplaces close-so does demand for G & S.

Question 36

define economic growth

Answer 36

is the real growth in the volume (value) of goods and services produced by an economy over a period of time.

Question 37

measurement of economic growth

Answer 37

the annual rate of growth in Real Gross Domestic Product (Real GDP)
GDP represents the total market value of final goods and services produced by a country over a period of time (year). Although data is recorded and released every 3 months (quarterly).
This figure is adjusted to remove the effects of any inflation existing within the economy over the same time period.

Question 38

Why is it necessary to remove the impact of inflation from GDP figures?

Answer 38

because they don’t adjust for inflation making it hard to compare values

Question 39

What does Australia produce? Key industries & their relative importance
What do we export? What do we import? Destination of Australian exports?

Answer 39

resources - land, wheat, coal, agricultural sources
Import transformed goods eg vehicles, television
export commodities - fruits, meat
common destinations - china, japan, south korea

Question 40

‘Best’ level for the rate of increase in GDP:

Answer 40

‘Best’ level for the rate of increase in GDP: between 3-4 % cent per year

Question 41

why is this best rate of increase in GDP

Answer 41

This rate allows for an increase in population, the replacement of goods and services that have been consumed, improvements and new products.

Question 42

what if the GDP is less than 3%

Answer 42

Anything less than 3 per cent is considered slow growth and suggests the economy is not keeping up with the demand for goods and services.

Question 43

what happens when the GDP is more than 4%

Answer 43

is considered to be too high and may not be sustainable- difficult to maintain over a longer period
- may mean inflation becomes a big problem
- other big problems may occur more often such as- pollution and environmental degradation.

Question 44

Currently the GDP figure is…?

Answer 44

2.7%

Question 45

what are the limitations around GDP

Answer 45

Limitations:
GDP doesn’t include non-market production (eg ‘cash’ economy, black market).
GDP doesn’t provide information about the distribution of production
GDP doesn’t consider the impact of production on the environment
GDP involves some ‘guesstimates’ of production eg value of production consumed on farms!

Question 46

factors that may affect economic growth

Answer 46

Consumer Confidence/ sentiment
Business confidence

Question 47

what is consumer confidence, why is it important

Answer 47

Refers to how optimistic consumers are in relation to the economy. A figure below a score of 100 suggests that more consumers are pessimistic about the future than optimistic.

Question 48

what is business confidence, why is it important

Answer 48

Businesses make decisions based on how confident they are in the performance of the economy. When businesses are confident that the economy is performing well, they are more likely to borrow money to invest and expand, increase their levels of production and hire more staff. Of course, when business confidence is down, the reverse occurs.