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Commerce > The Economic Environment > Flashcards

The Economic Environment Flashcards

1
Q

What is security

A

the condition of having stable income or other resources to support a standard of living now and in the foreseeable future

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2
Q

What is choice

A

we choose how we fulfil our unlimited wants with limited resources

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3
Q

What is opportunity cost

A

what we give up when a decision is made

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4
Q

What is the economics problem

A

We have unlimited wants and limited resources. We manage this by supplying based on deemed priority.

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5
Q

What type of economy does Australia have

A

mixed/market economy

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6
Q

What is a market economy

A

A market that runs itself but with some influence and participation by the government

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7
Q

What are the 5 sectors of the economy

A 
Household
Firms
Financial Institutions
The Government
Overseas
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8
Q

What does the household sector make up in the economy

A

the consumers

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9
Q

What is consumption

A

When households spend money on goods and services

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10
Q

Households own

A

all factors of production - land, labour, capital, enterprise

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11
Q

What do households sell and what is their return used to buy?

A

households sell the factors of production in return for income to purchase goods and services from firms

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12
Q

what do firms purchase from households

A

factors of production

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13
Q

What are producers

A

suppliers of goods and services

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14
Q

what does Y = C = O represent

A

Income = Consumption = Output

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15
Q

What does the financial sector link

A

saves with borrowers

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16
Q

What is a leakage

A

A divergent stream of income or capital from the iterative system. E.g. taxes, savings

17
Q

What is investment

A

When others can borrow savings from financial institutions, it is an injection

18
Q

What is equilibrium

A

where production, employment and income remains constant

19
Q

What is an injection

A

The introduction of income or capital into the flow of money. E.g. investment

20
Q

How does the government inject money from taxes into the economy

A

supplying of collective goods and services such as law and order, defence, education, and health and welfare

21
Q

In a 4 - sector model, equilibrium occurs when..

A

savings + taxes = investment + government spending ( S + T = I + G )

22
Q

In a 5-sector model, equilibrium occurs when…

A

savings + taxes + imports = investment + government expenditure + exports ( S + T + M = I + G + X )

23
Q

In a 3-sector model, equilibrium occurs when…

A

savings = investment ( S = I )

24
Q

If leakages are greater than injections the economy will..

A

fall (recession)

25
Q

If injections are greater than leakages than the economy will..

A

rise (boom)

26
Q

Why is equilibrium not ideal

A

we want an economy to grow so that households can receive more income to improve their standard of living

27
Q

What is disequilibrium

A

when the level of injections and leakages are not equal which leads to changes in production and consumption

28
Q

What is an upswing in the economy

A

If leakages are less than injections.

savings + taxes + imports < investments + government spending + exports

29
Q

What can an upswing in the economy result in

A
  • firms producing more
  • firms needing more FOP
  • households have more income
  • more income for households increases level of consumption and improve ec. activity
30
Q

What is economic growth

A

If we are producing more goods and services

31
Q

What is a downturn in the economy

A

If leakages are greater than injections

savings + taxes + imports > investment + government expenditure + exports

32
Q

What can a downturn in the economy result in

A
  • firms producing less
  • firms needing less FOP
  • households having less income
  • less income for households can reduce level of economic activity, worsening it
33
Q

What is investment

A

firms demand goods and services

34
Q

What is government expenditure

A

government demand for goods and services

35
Q

What are exports

A

overseas demand for goods and services

36
Q

What are imports

A

Australia’s demand for goods and services

37
Q

What is Aggregate Demand

A

The total demand for Australian goods and services impacting how much FOP is needed and hence how much income households receive

38
Q

AD=

A

C + I + G + (X - M)

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