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economics yr 11 > topic 6 > Flashcards

topic 6 Flashcards

1
Q

5 types of market failure

A
  1. failure to provide public goods
  2. failure to equitable distribute income
  3. failure to efficiently allocate environmental resources
  4. failure to ensure effective market competition
  5. failure to control excessive swings in BC
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2
Q

3 main types of market failure

A
  1. failure to control excessive swings in BC
  2. failure to equitable distribute income
  3. failure to efficiently allocate environmental resources
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3
Q

Macroeconomic tools of ___

A

fiscal and monetary policy control Aggregate Demand.

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4
Q

What is monetary policy?

A

is a government action through the RBA to change interest rates through changes to short term interest rates

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5
Q

What is fiscal policy?

A

broad government role regarding taxation and spending
- changes in direct and indirect tax (mid term –> budget expansion)
- changes to taxing, spending, borrowing (long term –> gov debts)
- changes tax framework
- affects C, I, G

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6
Q

What is a collective good?

A

are goods and services demanded by the public as a whole, they are both merit and public goods
- non profitable and and provided by gov
- e.g pubic trading enterprises which used to be natural monopolies (e.g public transport, telecommunications)

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7
Q

How does the government intervene with income inequality?

A
  • minimum wage
  • employment standards and work conditions
  • unemployment welfare and training
  • dispute resolution and unfair dismissal
  • penalty rates
  • fair work Australia’s 11 rights
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8
Q

What is poverty?

A

is an enforced lack of socially perceived necessities.
Australia only has relative poverty.
- it is hard to draw a poverty line (factors include unemployment, under-employment, casualisation)
- links to crime, health, education and social problems (social cost)

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9
Q

What is the poverty trap?

A

is that poor people think short term and spend instead of save (e.g rather children earn money than get higher education, choose welfare wages > job wages for poor people)

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10
Q

How does the government redistribute income?

A
  • taxing higher income earners
  • welfare payments
  • provides education, transport, health at lower costs –> social wage
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11
Q

What is the Lorenz curve?

A

is a curve showing the proportion of national income earned (total wealth) of a given population percentage
represents the degree of inequality

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12
Q

Steps to drawing a Lorenz Curve:

A
  1. rank everyone from highest to lowest income
  2. divide people into 5 equal quintiles and total quintile income
  3. draw % of income on y-axis and % of population on x-axis
  4. let each quintile be 20% of the x-axis and find the percentage of the quintiles total income/national total income
  5. draw the line of equality (straight line at 45%)
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13
Q

What is the gini-coefficient?

A

the proportion of the area taken up by the Lorenz Curve in relation to the overall are under the line of equality
1 = complete inequality
0 = no inequality

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14
Q

What is the most important characteristic of monopoly powers?

A

barriers to entry as new firms can’t enter the market using
- legal restrictions
- economies of scale
- control of an essential resource

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15
Q

What is the dead weight loss of the monopoly?

A

Due to a lack of allocative efficiency monopolies produce less but charge more so there is a debt weight loss (so there’s no gain for anyone)

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16
Q

To improve monopoly efficiency:

A
  • privatisation –> monopolies sold to market/investors
  • corporatisation –> govt runs monopolies using private sector to maximise efficiency
  • commercialisation –> govt run monopolies but want profit
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17
Q

How to stabilise economic activity?

A

Government moves counter-cyclically to control the business cycle’s swings through their TAX and EXPENDITURE to maintain
1. sustainable economic growth (raise standard of living)
- done by expenditure
2. internal balance
- price stability and managing inflation (via interest rates)
- increase employment to a sustainable amount
3. external stability (countries debt)
- ability to buy imports from exports

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18
Q

The federal government’s main fiscal weapon is the ___

A

annual budget divided into revenue and outlay to
- manage AD and economic activity
- resource allocation
- distribution of income

19
Q

Federal Revenue:

A

2020-21: $472
- 47% from income tax
- 18% from corporate tax
2022-23: $580B
- 45% from income tax
- 20% from corporate tax
2023-24: $680B
- 48% from income tax
- 20% from corporate tax

20
Q

Federal Outlay:

A

2020-21: $670B
- $227.5B for welfare
2022-23: $628B
- $222B for welfare
- $106B for health
- $45B for education
- $38B defence
2023-24: $684B
- $250.3B for welfare
- $106.5B for health
- $48.5B for education
- $42.8B for defence

21
Q

What is the budget outcome?

A

defines the annual NET gov Budgetary position in terms of SPENDING and REVENUE it is an important economic indicator
Budget outcome = taxation - spending
- GS>T –> deficit
- GS<T –> surplus
- GS=T –> balanced

22
Q

Using the economic indicators ___

A

inflation and unemployment we know which output gap we are in and therefore we should plan a budget surplus or deficit depending on the business cycle

23
Q

Planned budget outcomes using
Actual Budget outcomes using

A

accrual accounting (records revenue when money is going in/out as its being paid)
cash accounting (records revenue when money is recieved)

24
Q

Planned vs Actual budget outcome

A

2020-21: $-198/$-135
2021-22: $-143/$-80
2022-23: $-67 changes to $4/$28
2023-24: $-4B/???
contractionary

25
Q

What is fiscal consolidation?

A

a policy aimed at reducing government budget deficits and overall debt accumulation (e.g scomo)
- government hopes surpluses balance debts
- pay off debt

26
Q

What do taxes do?

A

taxes are collected by ATO
1. reduce inequality
2. change consumer’s on producer’s behaviour

27
Q

What are the broad categories of Tax?

A

PROGRESSIVE tax: use varying tax rates for taxing income (looking at taxes in comparison to income proportions to income) where higher earners pay more percentage tax –> fair not equal
PROPORTIONAL tax: fixed single tax rate applied to taxable income. flat tax (e.g old corporate tax at 30%) –> equal not fair
REGRESSIVE tax: same/fixed dollar amount paid regardless of income so the tax rate decreases the higher the income (e.g GST tax)

28
Q

Current income tax:

A

$18,200 = no income
lowest: $18,201-$45,000 = 19c for each $1 over $18,200
highest: $180,001 = $51,667 + 45c for each $1 over $180,000

29
Q

Types of equity:

A

Equity is the fairness of tax system, burden based on ability to pay
VERTICAL equity: higher earners pay greater proportion of tax bc they have greater ability to pay (higher income) –> more tax brackets
HORIZONTAL equity: equal earners pay equal levels of tax –> talk about gender pay gap = 13.8%

30
Q

How to calculate tax:

A

Average rate of tax (ART) = tax payable/taxable income x 100
Marginal rate of tax (MRT) = change in tax payable/change in taxable income x 100

31
Q

Short term?
Medium term?
Long term?

A
  • budget outcomes each year (e.g surplus or deficiti)
  • fiscal stances impact on Business Cycle and debt (contractionary or expansionary)
  • fiscal consolidation and ageing population and 3P’s (values business cycle stability)
32
Q

What is an output gap?

A

is the difference between the actual level of GDP in an economy and the potential level of GDP at full resource employment

33
Q

What graph do you draw when talking about stabilisation of economy?

A

Business Cycle

34
Q

What graph do you draw when talking about budget outcomes?

A

x- axis = national income
y-axis = taxation and govt spending
taxation line being a positive sloped line
govt spending being a straight line parallel to x-axis

35
Q

What are fiscal policy stances?

A

they examine the change in budget outchomes from sequence of consecutive budgets
- EXPANSIONARY increases economic activity (more spending)
- CONTRACTIONARY decreases economic activity (more taxation)
- NEUTRAL no change to budget outcome

36
Q

Structural Story?
link to AD

A

the result of discretionary initial decisions made in the budget estimates
Accrual accounting is used as the govt has control over discretionary decisions
TAXATION
- 2018 –> 2024 $300B tax cuts
- 2018 –> corporate tax progressive (stats)
SPENDING
- unplanned (2008 Rud’s $52B injections during BFC)(2020 $200B jobkeeper)
- planned (2021 $300B on AUKUS submarines) (health, education, etc)

37
Q

Cyclical Story?
link to AD

A

outcome change due to economic conditions experienced during the year, resulting in the implementation of the automatic stabilisers
Cash accounting is used as the government has no choice and has to react counter-cyclically to the business cycle (look at budget stances)
- progressive tax (income tax threshold and rates, corporate tax, mineral tax, etc.)
- unemployment benefits (2020 Jobseeker $690 fortnightly)

38
Q

What graph shows the 2 indicators of output gaps?

A
  1. inflation
  2. unemployment
    x- axis = quantity
    y-axis = price
    draw positive sloped aggregate supply line
    draw 2 negatively sloped aggregate demand lines (normal and increased)
    label arrows showing the increase in price = inflation and the increase in quantity = unemployment (labour is a derived demand)
    NOTE: if we increase 3P’s, EG will increase without Inflation increasing
39
Q

stances impact on savings

A
  • expansionary will reduce national savings
  • contractionary will increase national savings
40
Q

stances impact on resource allocation

A

changes to tax system and spending impacts resource allocation (e.g sales tax and subsidies, price floor, price ceiling)

41
Q

income distribution:

A
  • progressive income tax
  • transfer payments –> rich to poor
  • social wage –> public education, transport, etc.
42
Q

What can the govt do with a budget surplus?

A
  • repay government debt (e.g buying or selling bonds)
  • leave surplus with RBA as savings
  • establish special savings fun or sovereign fund to an emergency
  • part debt + part savings
43
Q

How do govts fund financial debt?

A
  • print money (inflation)
  • borrow money domestically (avoid crowding out)
  • borrow money internationally
  • sell state assets (e.g quantas, telstra)

economics yr 11 (7 decks)

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