The Economic and Business Environment Flashcards
Long-term impacts of recessions:
- Educational achievement
- Opportunity
- Private investment
- Entrepreneural activity
- Generational debt
Circular flow of income:
- Consumers
- Business
- Financial institutions
- Overseas sector
What is an injection into the economy + example?
An injection into the economy is an increase in spending that adds to the overall economic activity. These injections stimulate demand and can boost growth. For example, when the government builds new infrastructure like highways or schools, it injects money into the economy by hiring workers and purchasing materials, which increases demand for goods and services.
What is a leakage in the economy + exmaple?
Leakage is the outflow of money from the economy, which reduces the total amount of spending and economic activity. Fo example, when people save a portion of their income in a bank rather than spending it, that money is not circulating in the economy immediately, creating a leakage.
What is economic growth?
Economic growth is when injections are greater than leakages.
What is economic contraction?
Economic contraction is when leakages are greater than injections.
What is the household sector?
The household sector consists of consumers who hold econmic resources such as land, labour, captial or enterprise.
Explain the two-sector economic model.
People sell their resources to firms (businesses) in exchange for an income. Firms then use these resources to produce goods and services. Households use their income to buy various goods and services, known as conumption.
What is the finanical sector?
The finanical sector refers to finiancial institutions such as banks that act as intermediaries between the savers and burrowers of an economy.
What is saving money?
Saving means putting money away for later use and classified as a leakage from the circular flow of income.
What is investment?
Investment is when money is burrowd and used to expand a business. It is classified as an injection into the circular flow of income.
What is the government sector?
The government sector refers to the local, state and federal governments and has two signifcant rates in the circular flow of income: taxation and governemnt expenditure.
What is the overseas sector?
The overseas sector refers to the part of an economy that involves trade and financial transactions with foreign countries, including exports, imports, and international investments.
What are exports?
Exports refer to Australian businesses selling their goods or services to overseas individuals, business or governmnets and are an injection into the circular flow of income.
What are imports?
Imports refer to the buying of overseas goods and services by Australians, and are a leakage from the circular flow of income.
What is a recession?
A recession is where an economy gets smaller for a period of six months or longer.
Key features of economic contraction:
- Falling levels of production (output)
- Decreasing consumer spending
- Rate of inflation may fall
- Wage and interest rates generally fall
- Level of unemployment rises
Key features of economic expansion:
- Rising levels of production (output)
- Increased consumer spending
- Rate of inflation may rise
- Wage and interest rates eventually rise
- Level of unemployment falls
What is the cause of recession?
A lack of spending causes recssions.
What is the cause of booms?
Booms are caused by excessive spending.