topic 3 Flashcards
memorisation
leakages and injections
leakages: STM
injections: IGX
how does the PFP demonstrate economic growth?
graphically: outward shift
a. additional resources discovered
b. resources increase their productivity
c. technology improves
capital deepening
capital stock machines per worker grows as growth in capital stock is greater than the labour force - leads to EG + prod. per worker increases
capital widening
capital stock of machines keeps pace with LF growth - leads to EG BUT prod. stays the same
what is sustainable economic growth
a rate of growth which can be maintained without creating significant economic problems
MPC
change in one dollar of income leads to a change in dollars spent on consumption
what is the definition of the K multiplier
the effect on the equilibrium level of national income due to a change in certain expenditure components of AD (ie the injections)
what are the 5 sources of EG
- quality of labour/entrepreneurs
- increase in investment
- improved FOP efficiency
- favourable institutional features (govt, banking)
- increase in X industries
what are the 5 negatives of EG
- external stability
- environmental sustainability
- price stability (inf)
- equitable dist. of income
- employment
what is the definition of inflation
sustained increase (general rise) in prices of goods and services over time
what is the consumer price index
tool to determine the inflation rate
what is headline inflation
it is the raw inflation figure as reported through the CPI without removing ‘volatile’ price movements
–> NOT ACCURATE
what is core/underlying inflation
measured by taking the CPI outcome and then excluding volatile and other items such as government charges/natural disasters
what are the five causes of inflation (structural causes - broad)
- demand rise for G&S (demand pull AD>AS)
- imported price rise (imported inflation)
- cost rise for producers (cost push –> increase in cost of FOP)
- expectations for inflation
- quantitative easing
what can cause imported inflation
increase in the price of tradable products imported into australia
1. by price rises for those goods in exporting countries
2. a depreciation of the dollar
what is hyperinflation
when all 5 reasons kick in at the same time
- occurs when country has very high and accelerating inflation