Section 2: Our Economy

Question 1

What is an economy?

Answer 1

• way in which production and consumption of a society are managed to satisfy human needs and wants.
• Economics is the study of how individuals, businesses, governments and countries make choices about how to allocate scarce resources.

Question 2

Who are the participants in an economy?

Answer 2

The key stakeholders participating in an economy are consumers, businesses and governments.

SEE diagram google notes p 9

Question 3

what is formula for GDP ?

Answer 3

Formula for GDP: Aggregate demand = C + I + G + (X – M)

C= Consumer Expenditure
I = Investment
G= Government Spending
X= Exports
M= Imports

Question 4

explain GDP?

Answer 4

GDP per capita assumes improvements in living standards:
An increase in GDP doesn’t necessarily mean a reduction in
poverty rates.

Question 5

what DOESNT GDP measure?

Answer 5

Pollution and environmental damage, resource depletion, stress, urban problems, overcrowding and possible increases in crime and divorce rates are not measured by GDP per capita, yet they have a significant impact on our living standards.

Money spent on combating crime, legal fees involved in family divorce and the costs of dealing with pollution are actually recorded as additions to GDP’s value.

GDP does not distinguish between good economic activity and bad activity or negative external events.

Question 6

Define Economic GROWTH?

Answer 6

The need for an economy to produce goods and services to replace the ones that have been used or consumed is one of the main reasons why economies must grow each year.

Other reasons why economies must grow : population growth — ie requires additional goods and services — and the desire to continually improve the quality of products.

Measuring economic growth:important as linked to many other aspects of the economy / ability to satisfy the needs and wants of consumers.

Question 7

What is the effect of E- GROWTH?

Answer 7

eads to employment and infrastructure growth.

Question 8

How do we measure E-Growth

Answer 8

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

Measuring economic growth: E- growth occurs when an economy increases the volume of goods and services produced over a period of time.

The most common measure of annual rate of growth : gross domestic product (GDP).

Question 9

Explain GDP?

Answer 9

the total market value of final goods and services produced by a country over a period of time.

This figure adjusted to remove the effects of any inflation existing within the economy over the same period.

The most common means of measuring GDP is by using the aggregate demand (or aggregate expenditure) method shown in the diagram: see google;e notes : p 11!!!

Question 10

What is acceptable GDP growth?

Answer 10

3 percent and 4 percent per year: allows for an increase
in population, the replacement of goods and services that have been consumed, improvements and new products.

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

A rate of growth above 4 per cent is often considered to be too high; economy is growing too quickly and the rate of growth will not be sustainable.

Question 11

Explain income, productive activity, tax, redistribution?

Answer 11

Income derives from any productive activity.

Productive activity — comes from the use of any productive resource, and income is then distributed to the owners of those productive resources.

Labour resources receive a wage or a salary, and owners of capital resources receive a share of the business profits in the form of rent, interest and dividends.

Income can then be transferred to other members of the economy- ie taxation payments or income and in turn be redistributed by the government.

Question 12

Economists classify income into four types- what are they?

Answer 12

1. Income from labour :wages, salaries, and profits,
2. Income from property or wealth-earning assets, such as land and capita: dividends, rent, royalties and interest
3. Income from the government such as social services and subsidies: transfer payments.
4. Income in kind:substitution of goods and services, such as a company car or house for money.

Question 13

explain …Equitable distribution of income:

Answer 13

Income distribution :productive income is divided amongst participants in the production process and other dependent members of the economy.

The government does not aim for an equal distribution of income, as this reduces the incentive to work and earn income.

However, it does aim for a more equitable distribution of income: gov wants to provide a minimum living standard for low-income earners and their families, and reduce income inequalities suffered by other members of the economy.

Question 14

Equality over last 70 years in Aus: summarise gap between rich and poor?

Answer 14

Aus. has seen the gap between the richest and the poorest widen. The graph ( google notes p 13) shows that the lowest 20% of income earners receive about 8% of all income: highest paid 20% receive 40% of all income.

Wealth is even more inequitably distributed, with the wealthiest 20% of people owning approximately 63% of total wealth. Rising house prices in the capital cities has helped cause this.

Question 15

What are some Causes of inequality?

Answer 15

Demand side factors:
1. Unemployment, hours worked and incomes
(economy downturn > businesses cut production> employees working fewer hours or being made unemployed.

2. Inflation and purchasing power of incomes
   People without regular wage increases during times of inflation suffer: as purchasing power of their income is diminished.
3. Our capitalist economic system as an institution
   …those with ‘better’ labour receive greater incomes. which can be saved, invested or used to purchase assets which generate additional incomes…inheritances allow wealth to be passed on, making inequalities generational.

Supply side factors causing inequality:
1. Increases in the costs of production > can see workers retrenched.
2. New technology > workers being retrenched.
Both will lead to a decrease in the incomes and thus an increase in inequality.

Question 16

what are effects of greater equality?…

Answer 16

See notes p 14 !!

1. Living standards: poverty linked to crime
2. The way resources are allocated or used: luxury items and essential items
3. Production levels and unemployment rates: income. saving , income redistribution, gov stimulate production > employment
4. Labour productivity and the motivation to work: too much equality > impacts efficiency, motivation etc

5.Distribution of income: market and private escorts, care of those who are vulnerable

• Welfare benefits.
• Progressive taxes
• Provision of essential services:
• Compulsory superannuation:
• Environmental sustainability:

Question 17

What is unemployment ?

Answer 17

Employment: gives us income so we can purchase the goods and services we need and want.

In the workplace we can form relationships, and friendship groups later in life may include our work colleagues.

Employment enables us to feel good about ourselves as we are contributing to society, being productive and interacting with others.

Unemployed people have to rely on the government and welfare for their income. Unemployment is a situation where people who are willing and able to work are unable to find employment. The government recognises that there will always be some level of unemployment, but tries to reduce it. Its goal is to maintain the rate of unemployment at about 5 percent of the workforce

Question 18

Measuring unemployment ?

Answer 18

Gov. uses the Labour Force Survey: conducted monthly and involves about 32 per cent of the civilian population aged 15 years and over.

SEE Diagram p 16-17 -18

Question 19

What are 4 types of unemployment ?

Answer 19

. cyclical unemployment
* structural unemployment
* seasonal unemployment
* frictional unemployment.

See notes to understand above : p18 !!

Question 20

What are the impacts of unemployment?

Answer 20

. deteriorating living standards
* decreased national production
* changed government budget position.

See notes to understand above : p19 !!

Question 21

when does inflation occur?

Answer 21

when there is an increase in the general level of prices across the economy.

Inflation causes the value of money to fall

Question 22

How is inflation measured?

Answer 22

by the Consumer Price Index (CPI) : calculated every quarter by the Australian Bureau of Statistics (ABS).

The CPI measures the average change in retail price of a basket of local and imported goods and services that represent a high proportion of expenditure by metropolitan households.

This basket of goods and services is referred to as the regimen and it includes only those items considered important to Aus. households. The regimen comprises more than 80,000 items, which can be grouped into the following 11 categories:SEE p 20!

Question 23

What are the causes of inflation?

Answer 23

Demand-side factors: cause an increase in demand that exceeds the current level of goods and services.Can lead to shortages > prices rise! : DEMAND INFLATION
* Supply-side factors: lead to an increase in the cost of producing goods and services! : COST INFLATION

SEE notes p20-21!!

Question 24

Impacts of Inflation?

Answer 24

• causes local producers to lose out to overseas competitors. so proem rise locally > hurts Aus. producers in competing internationally
• Inflation erodes consumer / business confidence as consumers stop spending and producers stop investing in productive assets when prices are rising > less spending > decreased Econ Growth
• changes the allocation of resources. inflation : people with excess income often invest in unproductive resources; eg shares and property…. instead of purchasing productive resources
• affects income distribution: reduced purchasing power of the dollar > negative impact on income distribution.EG fixed wage: not able to increase their income to cope with price increases, > purchasing power declines.

Question 25

Calculating inflation ?

Answer 25

price of petrol over a period of time can give an insight into how inflation is calculated and the effect the change in price may have on other areas of the economy.

Question 26

What are sustainability indexes?

Answer 26

Alternative measures of standard of living

Question 27

What are Qualitative measures?

Answer 27

measure the performance of our economy.
EG: quality of our life and the economy

Question 28

Name 6 QUAL. measures?

Answer 28

Deforestation is an issue for economies that wish to

*Genuine Progress Indicator (GPI)
* Measuring Australia’s Progress (MAP)
* the Human Development Index (HDI)
develop in a sustainable manner.
* the Business Confidence Index
* the Liveability Ranking
* the World Happiness Report.

Question 29

What is the GPI?

Answer 29

calculates GDP :makes both negative and positive adjustments to the values to reflect the good or bad effects on society’s welfare of some types of activity and spending.

Deductions from the figures are made to reflect costs such as:
* environmental damage :pollution
* depletion of non-renewable energy resources: coal and petrol
* reduced leisure time : increased hours of work or travel times
* inequality in the distribution of income
* increased crime rates.

Some items that add to the GDP include:
* ongoing services provided by public infrastructure
* contributions made by the socially productive use of time, such as volunteer work and housework.

Question 30

what is MAP?

Answer 30

Measuring Australia’s Progress

Question 31

what does MAP measure ?

Answer 31

SEE table p 24 : google docs!!

Question 32

What is HDI?

Answer 32

The United Nations’ Human Development Index is a measure that compares the wellbeing of people in different countries.

EG: positive indicators (such as long life expectancy at birth, educational attainment and average level of income per head per year) and negative ones (such as infant mortality and prevalence of child labour), combining these into a single statistical index number.

Question 33

Explain the business confidence index

Answer 33

When business confidence high, more employees are hired.
… decisions based performance of the economy. Also more likely to borrow money to invest and expand, increase their levels of production.

Of course, when business confidence is down, the reverse occurs.

The National Australia Bank (NAB) has developed an indicator to measure business confidence: monthly business survey of more than 500 businesses to gauge how confident they are about the economy.

SEE Graph p25!

Question 34

What is the Livability Ranking?

Answer 34

While economic indicators are important: also need to think about quality of life. Liveability Ranking measures this. The Liveability Ranking considers a wide range of factors to determine which cities are the most desirable to live in.

See diagram p26 !
Categories include:
Education
Stability
Culture
Healthcare
Infrastructure

Question 35

What is the World Happiness Report?

Answer 35

first conducted in 2012: collects data 150+ countries and ranks
them based on the level of happiness of their citizens.

governments are interested in ‘happiness’ data because it not only tells them about the performance of the economy, but also benefits that people derive from the performance of the economy.

Some of the major areas used to calculate the ranking in the World Happiness Report:

• gross domestic product (GDP) per capita
• social support
• healthy life expectancy
• freedom of life choices
• generosity
• perceptions of corruption.

SEE Table on p27: for top and bottom 10 countries ..FYI: Aus. doesn’t figure! Finland tops!

Question 36

Sustainable Development Goals- what are they?

Answer 36

The UN has recognised that improving living standards should be a global concern.

As such, they developed the Millennium Development Goals: 17 in total…

1. To eradicate extreme poverty and hunger
2. To achieve universal primary education
3. To promote gender equality and empower women
4. To reduce child mortality
5. To improve maternal health
6. To combat HIV/AIDS, malaria, and other
   Diseases The United Nations’ Millennium Development Goals
7. To ensure environmental sustainability
8. To develop a global partnership

SEE Diagram + Explanations p28!

Question 37

International Trade and the Aus Economy

Answer 37

Aust is an open economy: trade in goods and services with other countries.ie exports and imports globally

International trade can affect our economic system in a number of ways:

• Australia has a relatively small population, so if overseas consumers buy the goods and services: local businessesgrow and employ more people.
• Some products cannot be made here as efficiently as in other countries: sophisticated machinery used in factories is imported: can help local factories remain competitive by producing goods more cheaply.
• Imported goods are sometimes cheaper than locally produced goods, so local producers can find it difficult to compete with imported products.
  Exports are good for the Australian economy because they bring money into our market system, while imports take money out of the country and pay it to overseas businesses.

SEE diagram p31

Question 38

What are Aus major trading partners?

Answer 38

During 19thC: Australian colonies were a major source of agricultural products: wool, and minerals such as gold, for Britain and its empire.

In recent years Aus has developed strong trading links with Asian neighbours: four of our five most important trading partners are now in Asia.

China top !

See tables p 32!

Question 39

Explain China as top trading partner ?

Answer 39

the value of our exports to China is A$123 274 million: represents 51.5 percent of our exports to Asia, and is almost 73 per cent more than the value of imports from that country.

The largest proportion of our exports to China is made up of iron ore and coal, which China buys to fuel its industrial growth

AND FUK the enviornment and build weapons to control the world ; but maybe re-phrase that as we dont won’t to upset the fragile wokes!

Question 40

Aus balance of trade refers to ?

Answer 40

When we compare the value of exports with the value of imports, we can calculate Aus balance of trade.

If the value of exports is greater than the value of imports in a particular period of time, we are said to have a trade surplus for that period.

If the value of imports is greater than the value of exports, we are said to have a trade deficit.

table on P 33: shows in 2017–18 Australia had an overall trade surplus with ten largest trading partners.

Question 41

What are Aus top exports?

Answer 41

raw materials, minerals and crops

Education-related travel is our third largest export and this comprises students from overseas travelling to Australia to complete their secondary or tertiary education

( Re Education: should I study in Aus or China? hmmm )

Question 42

What are top imports?

Answer 42

Asian nations are the main source of Australia’s imports, with four of our five main sources of imports coming from Asia. However, it should be noted that the second largest source is the USA.