Topic 1 - Economic Indicators Flashcards
How is unemployment measured?
unemployment rate = unemployed/labour force x100
Employed + unemployed =
labour force
Why is employment important?
if there are too many or not enough people employed economic growth would be too slow or too quick inflation
Australian government target unemployment
typically around 5% - we take into consideration that people change jobs and some people are just unemployed
Causes of unemployment
- cyclical
- structural
- frictional
- seasonal
- underemployment
- hidden employment
Cyclical unemployment
during an economic downturn, there is less demand for goods and services meaning there are less jobs required and unemployment increases
Structural unemployment
when peoples skills don’t align with the work available due to increase in technology
Frictional unemplyment
when people are leaving one job and starting another
Seasonal unemployment
eg, fruit pickers, ski instructors. jobs that are only done in certain seasons or time of the year
Underemployment
people who have a job but would like more hours
Hidden employment
people who say they aren’t interested in work but would work if they could find work
What is inflation
an increase in the level of prices of the goods and services that households buy
How is inflation measured
the rate of change of those prices
Why is inflation important
so that businesses make profit. When businesses make more profit they can afford to produce more which requires more workers which in turn lowers the unemployment rate
Australian governments target for inflation
typically around 2-3%
Inflation below 2% means…
the economy will not grow meaning there is a higher rate of unemployment
Inflation above 3% means…
there are affordability issues and a decline in living standards
Demand pull inflation
when the demand for goods exceed the supply of goods that can be sustainably produced
Cost push inflation
when the supply of goods that can be produced decreases which can cause high prices and faster inflation due to high demand
What is macroeconomics?
the behavior of the economy as a whole
a branch of economics that studies how an overall economy behaves (eg. markets, businesses, consumers, governments)
Business cycle
a type of fluctuation found in the economic activity of a nation, peaking and troughing over time
why is macroeconomics important?
it helps us understand how the economy is performing so the government can identify what needs to happen to keep the economy performing well so living standards are higher
what does the macroeconomic policy involve?
fiscal and monetary exchange rate policy
what is microeconomics?
the choices of individuals and businesses
the decisions that individuals and businesses make to allocate resources and the interaction between prices and production in certain markets
what does microeconomic policy involve?
specific measures concentrating on certain industries and markets including:
- subsidies
- taxes
- competition policy
- price controls
- environmental policies
- regulation
subsidies
financial aid including cash grants, interest free loans, tax breaks and rebates.
often to businesses that are desirable to the country including public transport and solar panels
taxes
competition policy
price controls
environmental policies
regulation
reduces barriers to entry for new businesses in an industry and prevents unfair conduct.
consumers have more options and creates competition so quality increases and price decreases
economics
the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively
need
things people require in order to survive including:
- food
- water
- shelter
- clothing
want
things that people desire but are not essential for survival including:
- TV’s
- headphones
- holidays
impact on society
the government aims to have all our needs and as many wants as possible met so that we will be happier and healthier and living standards increase
factors of production
- land
- labour
- capital
- entrepreneurship
land
natural resources which can be found above and under ground
labour
human effort and skill
capital
machinery or man made items
entrepreneurship
the combination of the other three factors to create a business
scarcity
there is not enough resources to satisfy all of peoples wants because production in limited and peoples wants are unlimited
law of demand
as price for a good increases, the demand for that good will decrease
as price for a good decreases, the demand for that good will increase
decreased price means its more affordable and therefore more of it is wanted
law of supply
as price for a good increases, the supply for that good will increase
as price for the good decreases, supply for that good will decrease
as the price increases, the business makes a greater profit and is willing to supply more
what is the economy
how is economic growth measured?
why is economic growth important?
Australian governments target for GDP
2-3%
limitation of using GDP as an indicator of economic performance
does not take into account:
- non-market production (unpaid household work)
- affect on environment
- improvements in quality
- underground market transactions
GDP
gross domestic product
how is the economy’s size measured?
the total production of goods and services within the economy (GDP)
