Task 1

Question 1

Define Economic Growth

Answer 1

Economic growth is the increase in the volume of goods and services that an economy produces over a period of time. It is measured in changes to real GDP, adjusted for inflation

Question 2

Whats the formula for GDP growth rate %

Answer 2

Change in Real GDP/ Real GDP

Question 3

how do you calculate real GDP using nominal GDP

Answer 3

nominal GDP* Base CPI/Current CPI

Question 3

What component of AD contributes the most

Answer 3

Consumption is at 50-60% of AD

Question 4

Whats the formula for AD

Answer 4

C+I+G+(X-M)

Question 4

What does aggregate demand determine

Answer 4

the level of spending and employment in the economy, affecting eco growth

Question 5

What is aggregate supply

Answer 5

Aggregate supply is the total level of income in an economy over a given period and this plays an important long term role in influencing levels of economic growth

Question 6

when does AS increase

Answer 6

• AS increases when theres a higher level of output for same cost
• increase in the quantity or improvement in the quality of CELL

Question 7

What are the benefits of economic Growth

Answer 7

1. Higher per capita income leading to higher living standards
2. higher levels of employment through higher participation rate as more workers are needed to meet the increased AD
3. higher levels of savings for future investment
4. greater taxation revenue for govt.

Question 8

What are the costs of economic growth

Answer 8

1. Damaging to the environment, with more demand meaning more production and more pollution
2. Higher structural unemployment due to large changes
3. increasing levels of income inequality with benefits concentrated at the top, with those who own businesses
4. higher levels of inflation
5. Higher levels of imports, leading to depreciated dollar
6. emphasis on materialism over morals
7. unbalanced growth can occur with capital being underutilised

Question 9

what are the three types of govt policies and describe them

Answer 9

Fiscal policy is a form of macroeconomic policy, directly affecting the government spending, with lower spending(contractionary) reducing the AD, and higher spending increasing AD

Monetary policy is another form of macroeconomic policy, which is done through the setting of the cash rate by the RBA

Microeconomic policy ensures AS remains on pace with the AD, with large imbalances needing to be solved through government expenditure into CELL through market reforming

Question 10

What is inflation

Answer 10

The general increase in price levels within a particular economy

Question 11

Whats the measure of inflation

Answer 11

the Consumer Price Index(CPI) is the measure, with is summarising the movement of prices of a basket of goods and services, weighted according to their significance for the average Aus household

Question 12

CPI formula

Answer 12

CPI change/Previous CPI *100

Question 13

Headline vs Underlying Inflation

Answer 13

Headline inflation is the raw inflation, not adjusting for any outliers or one-off factors

Underlying inflation is adjusted for outliers, removing the effects. This means it is less volatile than headline inflation

Question 14

Whats demand-pull inflation

Answer 14

Demand-pull inflation occurs when:
When Aggregate deamdn exceeds aggregate supply of an economy, prices are driven up to deter consumption from increasing further. This is due to firms not being able to meet the increased level of demand in the short term.

Question 15

Whats Cost-Push Inflation

Answer 15

Cost push inflation is when theres an increase in the costs of the factors of production, leading to firms passing costs onto consumers

Question 16

Whats inflationary Expectations

Answer 16

If individuals expect higher inflation, they may act in a way to increase inflation- aka speculation
eg. Prices expected to increase

Question 17

Whats imported inflation

Answer 17

Imported inflation is when there are changes with international transactions and export markets around the world
(cost-push inflation)

Question 18

What are the effects of inflation

Answer 18

• it discourages business investment
• but low inflation incentivises investment
• high inflation distorts decision making of consumers, as purchasing power is reduced

Question 19

whats the effect of inflation on wages

Answer 19

if purchasing power decreases then wage demands will increase, and more wages means higher costs for firms, pass onto consumers leading to wage-price inflationary spiral

Question 20

Analyse the effect of cyclical unemployment

Answer 20

Cyclical unemployment rises in a recession as spending and GDP growth fall, causing employers to lay off some existing workers and cease hiring new workers.

Question 21

Define Cyclical unemployment

Answer 21

a lack of employment as a result of changes to an economy’s business cycle.

Question 22

Define Frictional unemployment

Answer 22

form of unemployment reflecting the gap between someone voluntarily leaving a job and finding another.

Question 23

define Seasonal unemployment give two examples

Answer 23

Seasonal unemployment occurs when people are unemployed at particular times of the year when demand for labour is lower than usual.
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Question 24

Define underemployment

Answer 24

a measure of the total number of people in an economy who are unwillingly working in low-skill and low-paying jobs or only part-time

Question 25

define hidden unemployment

Answer 25

when people are not officially counted as unemployed, but would probably work if they had an opportunity.

Question 26

cause of cyclical unemployment

Answer 26

deficiency in aggregate demand

Question 27

whats the effect of inflation on unemployment

Answer 27

if inflation goes up govt do contractionary tings like higher interest rates, AD decreases so businesses will lay off workers, leading to higher unemployment

Question 28

Define the NAIRU

Answer 28

non-accelerating inflation rate of unemployment: the rate of unemployment at which inflation is neither accelerating nor decelerating: Also called: natural rate of unemployment.

Question 29

What Policies reduce unemployment

Answer 29

Stimulatory monetary policy through cuts to interest rates by the Reserve Bank of Australia;
Expansionary fiscal policy through an increase in government spending and/or cuts in taxes;
Industrial relations policy or wages policy to contain the growth in aggregate wages; and
Microeconomic reform policies to improve the economy’s resource allocation and productivity.

Question 30

Causes of unemployment are?

Answer 30

A deficiency in aggregate demand leads to a deflationary/unemployment gap in the economy;

Structural changes in production, consumption and technology may make some labour redundant due to a mismatch of labour skills demanded by employers and the skills supplied by the labour force; and

Excessive wage expectations may lead to rising wage costs for employers and lower demand for labour, causing some employers to substitute capital for labour in production.

Question 31

Main groups affected by unemployment

Answer 31

young people; women with children, workers with low levels of education, skills and training; blue-collar workers in manufacturing; migrants from non-English speaking backgrounds; and Aborigines and Torres Strait Islanders.

Question 32

Define distribution of income/wealth

Answer 32

The distribution of income and wealth is a reflection of how the benefits of economic growth including rising real incomes are shared amongst the population as a whole.

Question 33

How is distribution of income and wealth measured

Answer 33

The distribution of income and wealth is measured by economists through the construction of a Lorenz Curve showing shares of income or wealth for equal groupings of the population such as 20% quintiles.

Question 34

Define the gini coefficient

Answer 34

the extent of inequality in the distribution of income or wealth over time. The Gini coefficient varies in value from zero to one. A rise in the value (towards unity) of the Gini co-efficient implies an increase in inequality, whereas a fall in the value (towards zero) of the Gini co-efficient implies a reduction in inequality

Question 35

What are the main sources of income in Australia?

Answer 35

compensation of employees (wages and salaries); gross operating surplus and mixed income (profits from business enterprises); property income (rent, interest and dividends); and social benefits receivable (pensions, allowances, Job Seeker and other transfer payments) paid by the government to households with zero or low levels of income

Question 36

What are the main sources of wealth in Australia?

Answer 36

The main sources of wealth or net worth in Australia include owner-occupied dwellings and other property; the value of superannuation; the value of businesses; the value of household contents; financial accounts; shares, trusts, debentures and bonds; and the value of motor vehicles.

Question 37

Social benefit of income inequality?

Question 38

u can use all types of policies to deal with inflation