Topic 3 - Australia's economy

Question 1

Macroeconomics

Answer 1

How an entire economy functions. Birds eye view of the whole economy. Looks at big picture.
(Recession periods, boomtimes, inflation…)

Question 2

Microeconomics

Answer 2

How individuals, businesses and households make decisions. Looks over small bits that influence the overall economy.
(Woolworths, NAB, childcare, oil, exports…)

Question 3

Types of unemployment

Answer 3

Frictional, structural, seasonal, cyclical

Question 4

Frictional unemployment

Answer 4

When people are entering the work force for the first time or are between jobs because they are looking for a better one.

Question 5

Structural unemployment

Answer 5

When people lose their jobs due to their job being removed from the economy, usually due to technology.

Question 6

Seasonal unemployment

Answer 6

When people lose their jobs because the job is temporary due to a season.

Question 7

Cyclical unemployment

Answer 7

When people lose their job due to a recession or contracting economy.

Question 8

Labor force

Answer 8

The number of employed people plus unemployed people count in the labor force.

Question 9

Unemployment rate

Answer 9

Unemployed / Labor force (employed & unemployed) X 100 = Unemployment rate.
Usually between 3-5%

Question 10

Underemployment

Answer 10

When an employed person’s human capital exceeds the requirements of their current job.
(A person with a college degree working as a cashier for a fast food company).

Question 11

Unemployment benefits

Answer 11

When someone is laid off, they may qualify for unemployment benefits from the government for a period of time.

Question 12

Unemployment

Answer 12

When someone is jobless but actively looking for a job within 4 weeks.

Question 13

Who does NOT count as unemployed?

Answer 13

Discourage workers: people who need and want a job, but have not actively looked for work in the past 4 weeks because they’re unsuccessful in their search.

Question 14

What are the limitations of GDP?

Answer 14

Non-market transactions. (black market)

Question 15

GDP formula

Answer 15

C + I + G + ( X - M)
Consumption + Investment + Government Spending + Exports - Imports.
All these count towards GDP, unless we import more than we export.

Question 16

What are the economic goals of an economy?

Answer 16

Keep the economy growing (Economic growth - GDP)
Stable prices (Low inflation)
Low unemployment (Unemployment rate)

Question 17

What is GDP

Answer 17

Gross (total) Domestic (within a country) Product (goods and services sold in economy)
The sum of prices of all final goods and services within a country

Question 18

GDP per capita

Answer 18

GDP divided by population.
This is useful because it helps determine the country’s living standard.

Question 19

What causes inflation?

Answer 19

When consumers/business/government demand more goods than the economy can produce, causing prices (inflation) to rise.

Question 20

Inflation

Answer 20

Increase in prices of the goods and services that households buy.

Question 21

Recession

Answer 21

Period of temporary economic decline/downfall. Output (production of goods and services) falls for a period of time.

Question 22

ABS

Answer 22

Australian Bureau of Statistics

Question 23

RBA

Answer 23

Reserve Bank of Australia
Australia’s central bank. The RBA carries out the monetary policiy

Question 24

CPI

Answer 24

Consumer Price Index
Measures change in prices paid by consumers

Question 25

Extreme phases in the business cycle

Answer 25

Boom: Rapid growth in prices
Recession: When output has fallen for a period of time (meaning GDP also falls)
Depression: Very severe recession. Unemployment rate is likely to be high

Question 26

Business cycle

Answer 26

Depicts the rise and fall in output (production of goods and services) over time.
Includes 4 cycles…
Expansion
Peak
Contraction
Trough

Question 27

Monetary policy

Answer 27

Cash rate is decided. Cash rate influences interest rates that households/businesses/government pay to borrow money. This affects their decisions about how much money they spend/save. (The RBA sets out the monetary policy)