Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

HSC ECO > Topic 3 Economic issues > Flashcards

Topic 3 Economic issues Flashcards

1
Q

What is economic growth

A

Refers to increase in volume of goods and services over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How to calculate economic growth

A

Use the percentage change between the GDP from present to previous - > GDP (current) - GDP (previous) / GDP (previous)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What was Keyne’s belief?

A

Keyne’s theorey stated the most important influence on economic growth was expenditure (demand) or “aggregate demand”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What does AD mean?

A

AD refers to total expenditure of the economy over period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What about Y mean?

A

Y refers to total national income of the economy iver a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Show both AD and Y Equations

A

AD = C+ I + G + (X-M) Y = C + S + T

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When is equilbrium in an economy?

A

When both AD = Y —> When leakages = injections

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Does AD influence short-medium eco growth?

A

Yes it can affect in short-medium term and AD can affect eco growth and policy makers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Talk about the factors within consumption

A
  1. High income earners = Higher consumption 2. Consumer expecatations 3. Level of interest 4. Distribution of Income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Talk about the factors with investement

A
  1. Cost of capital equipment 2, Business expectations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Talk about factors with government spending

A

To maintain stable economic growth and AD —> Fiscal policy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Talk about factors within exports and imports

A
  1. Levels overseas income and domestic income –> Exchange rate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the multiplier process

A

Increase in spending produces an increase in national income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does “marginal” mean

A

Proportion of each extra dollar of income that is either spent or saved

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Talk about the multiplier trend?

A

The multiplier process always rises more than the initial increase and it will continue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How to calculate the multiplier

A

K = 1/MPS or 1/1-MPC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the role of Y on the economy

A

The shift in AD plays the main role in determining the level of eco growth, but Y plays a important role in the long-run determining the capacity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is Y determined by?

A

Determined by quantity and quality of FOP ( Represents capacity of the economy)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What can improve the Y

A

Increases when quality improves or quantity increases –> Improvements in technology, higher skilled labour, discovery of new resource and etc

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

But for Australia, what causes the capacity constraints (hint: micro)

A

Due to infrastructure bottle neck and lack of skills –> Resulting in implementation of micro eco –> to increase productivity in certain industries with strong demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is a recession

A

Economic constratint for two consecutive business quareters

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How is Australia in the global economy

A

Australia has been favourable since early 1990s with US-AU trade relationship and developing to China to sustain Australia’s economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the most recent eco growth of Australia

A

It is currently experiencing a negative growth of -0.4%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Current situation of Australia

A

Currently, Australia’s economic condition is very poor due to decrease in economic acitivities such as decrease consumption, business investment and spending as a result of COVID-19

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Use of macroeconomic policies

A

Macroeconomic policies are short-medium term, by influencing the AD, with smoothing fluctuations and achieving economic goals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Use of fiscal policies

A

Use of government budget to achieve economic goals by influencing the expenditure and revenue –> Adjusting the level of AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Use of monetary policies

A

Cash rate adjustments —> Expenditure levels and ultimately the eco growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Use of micro-economic policies

A

Structural adjustments —> Increase productive capcaity/ aggregate supply (long term)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Define the “labour force”

A

Is the population that is over the age of 15 that is either working or actively seeking for work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Who does it include:

A

Person wokring a 1hr week for paid work or self employed, person over aged 15 and actively seeking employment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is the labourn force participation rate

A

Is defined as the percentage of working age population who is in the labour force

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

How to calculate it

A

Labour Force/ Total Working Population (15+) x 100%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What does unemployment mean

A

Individual that iis not working but actively seeking for work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

How to calculate it

A

Unemployed/ Total labour force x 100%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Talk about Australia’s unemployment trend

A

Australia as of now has high unemployment rate of around 5% which is over the targeted unemployment rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What is Okun’s Law

A

Oken’s law illustrates the relationship between eco growth and unemployment. In order to reduce unemployment the annual eco growth needs to be >sum of percentage growth in productivity + increase in size of labour in 1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Define cyclical

A

Caused by contraction in economic acitvity or aggregate demand

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Define structural

A

Caused by changing work patterns of technology or demand for certain goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Define frictional

A

Unemployment arising from new entrants into labour market and workers waiting to start a new job

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Define seasonal

A

Occurs in industries or regions where the demand for labour is lower at certain times of the year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Define hidden unemployment

A

Hidden unemployment refers to individuals that are not actively seeking and is not used for ABS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Define long-term unemployment

A

Refers to people who have been unemployed for 12 months or more

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Define underemployment

A

Employed people who are both willing and able to work more hours than they are currently working

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What is NAIRU

A

A rate of unemployment that is consistent with a constant inflation rate or no change in the inflation rate –> Lowest employment rate sustained without an increase in inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

What happens when unemployment rate is below or on par with NAIRU

A

When unemployment is below the NAIRU, there is upward pressure on wage growth and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What happens when unemployment rate is above NAIRU

A

Inflationary pressures will fall so the inflation decreases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Define “unemployment gap”

A

Is the gap between NAIRU and unemployment rate important to determine the wage growth and inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

How to influence the NAIRU

A

Through long term policies that improve the skill of unemployed or address other hurdles in regards to employment. E.g. Labour market policies or other microeconomic policies improving productivity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What factor does NAIRU not take account?

A

It removes cyclical influences despite unemployment being caused by cyclical factors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

How is level of economic growth causing unemployment

A

Labour is considered to be “derived demand” based on the production of goods and services therefore any fucatuations within the AD or economic growth will affect the demand for employment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

How about stance of macroeconomic plicies

A

It can influence the level of cyclical unemployment through the influence on the economic cycle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Constraint on economic growth?

A

Severe constraints on eco growth —> Less job opportunities available –> Increase in unemployment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Why is there rising particpation rates?

A

Unemployment in the short term due to entrance of new entrants seeking jobs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Structural changes?

A

As a result of the rellocation of labour from inefficient industries to more efficient industries (short-term unemployment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Technological changes?

A

New and improved products can result in subsitution of capital for labour and change in work skills for employees

56
Q

Productivity levels?

A

High productivity tends to increase unemployment because less employees are required. Long-run contributes to economic growth and have lower unemployment rate in the short term

57
Q

Level of training and skills

A

Structural Unemployment is related with mismatch of skills of the unemployed and the skills demanded by the employer

58
Q

Increased labour costs?

A

Caused by excessive wage demands, shortage of labour and government decisions and policies

59
Q

Inflexibility in the labour markets? (Expense)

A

High minimum wages rates make it less attractive for employers to hire skilled workers

60
Q

What are the economic costs of unemployment (5)

A

Opportunity costs, lower living standard, decline in labour market skills, costs of governments and lower wage growth

61
Q

What are the social costs of unemployment (2)

A

Increased inequaltity (division) and other social costs (poverty)

62
Q

Name and describe 4 groups affected by unemployment

A

Foreginers - Slightly higher due to natural barriers, indengious - Many regions are high unemployment, Youth unemployment - Lack of skills and experiences needed in the workforce, Specific Regions - Different areas suffer high unemployment

63
Q

Explain policies used to decrease unemployment

A

Labour market policies -> Provide individuals with employment opportunties, macroeconomic

64
Q

Define “inflation”

A

Is the increase in general level of price over a period of time

65
Q

How is it measured and define “CPI”

A

Looks at the price movements of basket of goods and services, weighted according to their significance for the average Australian household

66
Q

How to calculate the inflation rate

A

CPI (Current) - CPI (Previous) / CPI (previous year)

67
Q

What is the “headline” inflation rate

A

Using the CPI can be misleading indicator of ongoing price pressures in economy because there are good and services whose prices may be highly volatile or one off factors

68
Q

What is “underlying inflation”

A

Removing the volatile/one-off price movements in the CPI

69
Q

What was inflation like before 1990s

A

Australia was experiencning high inflation rates

70
Q

How did the recession help Australia (inflation)

A

It allowed Australia to drop its inflation rate and to form new inflation rate targets

71
Q

Name most recent inflation rate

A

As of of 2018, December the inflation rate is was at 1.8%

72
Q

How will corona impact the inflation rate

A

As a result of COVID-19 –> Inflation rate has soared due to increase in demand for certain groceries for the short term –> Will fall –> Due to low income and weak wage growth

73
Q

What is demand pulled inflation

A

Is caused by the AD which can exceed the supply therefore rising the price of the good and service

74
Q

What is cost pushed inflation

A

Is related to the costs of production, which businesses must apply if it goes up to the customers and therefore increase the price –> Cause inflation

75
Q

What is imported inflation

A

Caused by the increase in price of imported goods –> Increased FOP —> Higher prices for domestic goods –> Depreciation in Exchange rate will result in increase the imported price

76
Q

What is inflationary expectations

A

Speculation for inflation —> Price increase/Firm increase in AD –> short term purchases and employees expecting inflation –> wage growth –> improve in purchasing power

77
Q

Do governments look for low inflation or high

A

Generally, economies seek aim and sustainable inflation to avoid high inflationary issues which brings about its own set of consequences

78
Q

Discuss the effect on eco growth (llow inflation)

A

Sustained low inflation will provide moderate sustainable economic growth without need to adjust cash rate -> Low inflation reduces distortionto investment and saving

79
Q

Discuss the effect on wages

A

Forms “wage-inflationary spiral” where higher incomes –> higher prices –> high wage demands and the cycle

80
Q

Discuss the effect on income distribution

A

High inflation –> Will create further income inequality as a result of low income earners not experiencing chnage in price and face more challenges in borrowing

81
Q

Discuss the effect on unemployment

A

Increase in inflation –> Government to utilise contractionary policies –> Increasing unemployment in short-medium term. Along with high unemployment leads to high inflation pressures (stagflation) –> Talk about NAIRU explanation of inverse relationship between inflation and unemployment

82
Q

Discuss effect on international competition

A

High inflation will increase the price of exports which in turn makes imports more competitive

83
Q

Discuss effect on exchange rate

A

High inflation in short term will appreciate AUD since RBA would increase cash rate attracting foregin investors and increasing financial flow. However, low inflation may strengthen international confidences in the AU economy and strengthen the AUD

84
Q

Disucss the effect on interest rate

A

High inflation will increase cash rates. Low inflation will be reduced in nominal interest rates based on real rate of return +inflation

85
Q

What are the benefits of inflation?

A

It prevents the possibility of deflation which has more consequences - such as economic downturn or fall in consumption

86
Q

Whatt is “external stability”

A

Is an aim of government policy that seeks to promote sustainability on the external accounts so that Australia can services its foregin liabilities in the medium-long term and avoid currency volatility

87
Q

Name the external issues Australia experiences

A

Persistant history of CAD, rising terms of trade, lack of international competiveness, growth of foregin debt , rising foreign ownership, volatility of AUD

88
Q

What is the argument against Australia’s external instability?

A

Argument against, Australia is experiencing sustainable economic growth, low inflation and rising employment and has maintained the confidence of foregin investors

89
Q

Name the measurements of external stability

A

Australia’s CAD as perecentage of GDP, exchange rate, Australia’s foregin liabilities, terms of trade, international competiveness, net foregin debt and net foregin liabilities as percentage of GDP

90
Q

Explain the (2) factors that lead to Australia’s persistent CAD

A

Trade deficit and savings-investment gap

91
Q

Explain the Pitchford Theory and mention (2) assumptions made

A

Private secotrs make safe “ risky” evaluations and private and public debts are separate

92
Q

Define “net foreign liabilities”

A

Refers to ttotal financial obligations Australia needs to pay back to the world

93
Q

What does it comprise of ?

A

Comprises of net foregin debt and equity

94
Q

How does overseas borrowing contribute to net foregin liabilities

A

Adds direcly to Australia’s debt as the initial sum has to repayed through regular interest repyaments

95
Q

Explain the “debt trap” (mention Aus being in high cad)

A

Long term excessive growth in Australia may result in increase in foregin debt –> ongoing strain on external accounts —> More depednet on foregin infllows to fund servicings costs —> Further deterioation of CAD

96
Q

What does persistent negative CAD reflect?

A

Reflects upon the high level of external imbalance –> increasing vulnerability of the economy to adverse economic developments

97
Q

Importance of exchange rate?

A

Provides link for Australia in the integerated world since all financial and trade flows are carried through ES

98
Q

Negative of rising terms of trade

A

Exports become more expensive and imports become cheaper –> deterioation in terms of trade and competiveness

99
Q

How has floating exchange rate helped Australia

A

The floating exchange Australia has helped Australia overcome the global conditions for certain crisis. However, if it is volatile it may pose issues for Australia

100
Q

Explain the negatives of volatility of exchange rates

A

Change in ES—> change international competiveness and size of foreign debt —> creates unceratnity in the markets —> Vicious cycle downwards

101
Q

What policies are used to address external stability (long-run)

A

Name 4

102
Q

Impacts of the (4) policies on the external stability (*compulsory superannuation)

A

Monetary (Trade), Fiscal (Savings and investing), Superannuation ( Savings) and Micro (Structural –> International Comeptiveness)

103
Q

Define “income inequality”

A

Refers to the degree to which income is unevenly distribution among individuals in the economy

104
Q

How does Lorenz Curve display income inequality

A

Is a graphical way to interpret the income inequality by plotting cumulative percentage of total income against the cumulative percentage of income receipients

105
Q

What is the line of equality? Importance?

A

Is a diagonal line running through the origin y=x. further away –> Greater degree of income inequality

106
Q

Define “gini coefficient”

A

Is a single statistic that measures it from 0-1 summarising the distribution of income

107
Q

How is it calculated?

A

Area of A /Area of A+ Area B x 100%

108
Q

What is the range and meaning?

A

0 - Refers to when all income are equal, 1- refers to unequal - when single household receives all income

109
Q

What are the sources of income(5)

A
  1. Wages 2. Rent 3. Earnings from capital 4. Profit from entrepreneurial skills 5. Transfer Payments
110
Q

What are the sources of wealth (4)

A
  1. Property 2. Superannuation 3.savings and ownership of business assets 4.loans 5.credit debits
111
Q

Define “net worth”

A

Value of household assets - Value of liabilities

112
Q

List some trends of income inequality in Australia

A

In 2017/18 - Australia richest 20% of households owned 62% of the net worth

113
Q

What are groups affected by it (5)

A
  1. Age 2. Gender 3. Cultural Background 4. Family Structure 5. Region
114
Q

Describe all of them briefly ?

A
  1. Income varies over the course of person’s lifetime 2. Gender discrimination in the workplace 3. Income distribution depends on how long they speak and if they were from English-speaking country 4. Couples enjoy higher income than single 5. Different regions have high income inequalities
115
Q

Name (3) and describe the economic benefits of income inequality

A
  1. Inequality encourages labour force to increase education and skill levels 2. Inequality encourages labour to work harder and longer (productive capacity 3. Labour mobility 4. Encourages entrepreneurs to accept risks more readily 5. Encourages saving and capital formation
116
Q

Name (3) and describe the economic costs of income inequality

A
  1. Inequality reduces overall utility 2. Inequality reduces economic growth 3. Inequality creates conspicous consumption 4. Forms more povery and social problems 5. Inequality increases the cost of welfare support
117
Q

Name the limited social benefits and why there isn’t much?

A

Well, unequal distribution of income in the first place limits the social benefits because other than making people work harder, they are essentially stuck in an endless cycle of poverty due to reduced opportunities

118
Q

Name and describe social costs of income inequality

A

Social Costs: 1. Division -Formed through income distinctions - Due to difference in incomes it can often categorise people 2. Poverty: Reduced opportunities —> Creating cycle of poverty

119
Q

How does “environment” add another dimension to achieving economic goals?

A

Overuse of exploitation of resources lead to depletion of resources and environmental damaage leading to welbeing issues and fall in potential resources

120
Q

Define “ecological sustainable development” (*quality of life)

A

Conserving and enchancing the community’s resources so that ecological processes and quality of life are maintained

121
Q

What is the (2) important aims of eco growth and environment protection

A

Preserving the ecological processes and provide higher standard of life

122
Q

Define “intergerational equity”

A

The concept states resources should be preserved for the improvement of quality of life in the future generation

123
Q

Define the “price mechnism”

A

Is the interaction of the market forces between demand and supply to reach an equilbrium price and quantity of production

124
Q

Define “market failure”

A

Occurs when the price mechanisms takes account private benefits and cost of production to consumers and producers but does not take account of wider social costs and benefits borne by the society.

125
Q

What are “negative externalities”

A

Are negative spill-over effects of production on the environment and society

126
Q

What is the big obstacle preventing environment protection? (Tragedy of the commons)

A

Since eco-system is based on private ownership and the resources don’t have property rights –> Easily be exploited and overused -> “Tragedy of the commons”

127
Q

Another bad feature of price mechanism for environment (allocation)

A

Cannot allocate environmental resources to what is free

128
Q

What are “positve externalities”

A

Are positive spill-effects of production that are beneficial to society “merit goods”

129
Q

Explain negative externalities during production

A

If producers were to borne the price of social costs it would rise in price and cost thus demerit goods are seen to be overproduced in society

130
Q

Explain positive externalities during production

A

Positive externalities are underproduced since the benefits of production are not enjoyed by consumers. It would shift to right and the space indicates the positive externality (theoretically)

131
Q

What are (2) characterisitcs of “public goods”

A

It is non-excludable and non-rival

132
Q

What is the issue of free riding

A

Where group/individuals enjoy the benefits of the good or service without contributing to the cost of supplying of the good or service

133
Q

Explain why firms tend to not to produce public goods

A

Firms tend to underproduce or not produce due to free riding issue and the costs of producing since no revneue is made . contradicting the business goals

134
Q

Discuss the issue of “preserving natural environments” (3 costs), (ways)

A
  1. Reduction in economic growth 2. Higher costs due to new restrictions 3. Costs of repairing -> Firm damage borne by taxpayers
135
Q

Discuss the issue of pollution and strategies to prevent it

A

Is created through production —> which can damage the nautrla environment and the government has set out certain policies and projects

136
Q

Discuss the issue of climate change and impacts

A

Generated through the emission of greenhouse causing depletion of natural resources —> using more renewable energy to generate energy

137
Q

Discuss the issue of “depletion of natural resources’ (Both economical and environmental, welbeing)

A

If the natural resources we use deplete —> the supply will run out which will damage our productive capacity —> harming the global economy and the environment

HSC ECO (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions