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
what are the 6 causes of higher inflation
- high wages and non-wage benefits
- depreciation of aud
- higher food prices from natural disasters
- supply constraints and strong demand
- government interventions
- higher oil prices
what are the 5 positives/rationale of inflation?
- stimulates wage growth pressure
- inflation is better than deflation
- price movements allow for more efficient determination of relative prices
- signal that economy is performing strongly
- real value of debt decreases over time
what are some negative effects of inflation
- increased production costs
- loss of intl compt
- loss of profit and market share
- fall in real wages
- impact on C and S
- redistribution of Y
- weaker fiscal policy
- holds back EG
what are the two positive effects of inflation
- inflation helps borrowers with loans with fixed interest rates
- asset prices may rise, increasing wealth effect
what affects the supply side of labour? (4/5)
population
- birth rate
- migration levels
- age distribution of population
- size of population
what are the 5 economic factors influencing the supply of the labour force
- wages and incentives
- working conditions and non-financial incentives
- education and qualifications
- institutions
- geographic and occupational mobility
define employed
those over 15 and working at least one hour a week paid (can be unpaid in family business) or are on paid leave
when does full employment occur
when cyclical unemployment is 0
what are the causes of UE
- structural change
- labour vs capital productivity
- deficiency in AD
- unions
- concept - nairu
what 2 things cause structural change
- rapid wage growth
- mismatch of skills
what is the definition of okun’s law
the rate of growth must exceed the contribution of productivity growth in the workforce for the UE rate to fall
what are the three issues of stickiness in the UE market
- unplanned inventories
- part time workers
- opportunity to rethink
what are some of the positive effects of unemployment (max 9)
- incentive for employed workers to work harder
- businesses can easily cut cost
- lower NY, lower AD, less demand-pull inflation
- incentive to retrain and switch careers
- incentive to start new businesses
- incentive to move and follow jobs out of state
- increase in charity work
- ‘excess capacity’ in economy for future increases
- go travelling
what are some of the negative effects of unemployment?
economic:
1. widens income inequality
2. lower EG low O
3. loss of human capital
4. increase in long-term UE
5. less income, tax rev
6. greater welfare burden
7. lost income - poverty trap
social
8. increased suicide
9. higher crime rates
10. increase in chemical abuse
11. lower self-esteem
12. increased family breakdowns
what is the definition of income and its types?
the flow of funds or money from market and non-market sources
- flow concept
types:
1. primary
2. secondary
what is the definition of wealth and what is the net asset formula?
the value of real and financial assets owned by individual at a particular point in time
- stock concept
net assets: real + financial assets - liabilities
what are the 6 cause of inequality?
- economic systems
- wealth
- life opportunities
- taxation and welfare
- demographic
- institutional factors
what is poverty, absolute poverty and relative poverty?
poverty: enforced lack of security of perceived necessities to achieve an ‘adequate’ standard of living
absolute: situation where individuals do not have access to the basic requirements of life
relative: situations where individuals’ incomes means they are excluded from being able to take part in what’s considered the normal, acceptable standards of living in a society
what are the four issues of poverty?
- difficulties with drawing line between those in poverty and those outside
- what is adequate food, clothing and shelter
- does living in a sewer count as shelter
- does having some clothing mean that you are not experiencing absolute poverty
what are the definitions of the three types of tax?
progressive: varying tax rates for taxing income whereby higher income earners pay progressively more tax than low income earners
proportional tax: fixed single tax applied to all taxable income
regressive tax: low income earners pay higher percentage of their income in tax than high income earners
- eg GST
what are the 6 benefits of inequality
- incentive effect
- entrepreneurship
- opportunity for savings
- some better off
- encourages social change
- puritan positive values
what are the 6 costs of inequality
- social dividedness
- lower consumption
- higher conspicuous consumption
- lower utility
- higher government spending
- intergenerational poverty
what are the 6 nationwide causes of inequality
- factor endowments
- size and quality of LF
- climate
- stage of economic development
- poverty cycle
- economic power (ability to be able to dictate terms with suppliers and buyers)
what are the seven dimensions of inequality
- occupation
- age
- gender
- ethnic/cultural background
- household structure
- regions
- institutional factors