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U3 AOS 2 "domestic macroeconomic goals" Flashcards

1
Q

material living standards

A

economic activity of individuals as effected by incomes and the quantity of goods and services consumed per person per year

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2
Q

Non material living standards

A

quality of daily life, can be effected by amount og leisure time, happiness life expectancy

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3
Q

factors affecting non material living standards

A

Happiness:
can be improved through g/s but more complex, as only up to a point as this includes relationships, security and having freedom

physical and mental health:
our quality of life depends on these

crimes rates: can cause stress and scaredness

environmental quality:
effects material and non material now and the future, can effect displacement of peoples homes

leisure vs work times:
work is necessary to earn income but so is a work like balance

literacy rates:
can impact oppurtunities

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4
Q

conflicting relationships between Material and non material Living standards

A

Environmental trade off:
our greed to make more goods increases material living standards but can decrease now and future non material

health and social trade off:
leisure time may be decreased as working time is increased

material trade off:
if govt. introduces policies to increase non material living, can effect material living standards e.g decreasing work time, decreases money for g/s

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5
Q

compatible relationships between material and non material living standards

A

Cultural enrichment: higher incomes allow for international trade

Longer life expectancy:
for curable issues

Possibility of reduced environmental damadge:
higher incomes can be directed to combating environmental damadge and reducing pollution

more leisure time:
higher incomes enable individuals to reduce their working hours and stress and increase leisure time

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6
Q

Economic activity definition

A

actions of individuals, firms and governments that generate the production of goods and services, employment and incomes

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7
Q

what is the process of economic activity

A

converting scarce resources into goods and services

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8
Q

effects of economic activity on non material living standards

A

-diminishing scarce resources for future consumption
-may produce market failure through over production and negative externalities such as climate change, pollution
-increase in production may produce longer working hours

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9
Q

effects of economic activity in material living standards

A

-may increase material living standards as incomes rise in order to allow people to purchase more g/s

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10
Q

ways to measure levels of economic activity

A

-GDP
-Inflation
-unemployment

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11
Q

GDP definition

A

final market value of g/s produced in an economy over a period of time (measure of total production)

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12
Q

how economic activity effects current materials

A
  1. quantity and quality of g/s produced + availible
  2. employment opportunities, number of jobs
  3. determines avg. incomes, consumer prices, purchasing power
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13
Q

diffrent kinds of GDP to measure

A

GDP(E)= total market expediture

GDP(Y)= total market incomes

GDP(P)= total market productio

these give us the GDP in dollars

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14
Q

(real GDP) GDP chain volume

A

refers to GDP that removes the effect of rising of falling prices

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15
Q

measurement limitations of GDP

A

-Non market production excluded (including illegal production + housework (DIY))
-some production must be estimated (such as farm output that is consumed on farm)
-growth does not necessarily equate to an equal distribution of the benifits
-international comparisons are diffrent by use of diffrent methods

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16
Q

other aspects of incidators associate with economic activity

A

lagging indicators
coincedent indicators
leading indicators

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17
Q

Lagging indicators

A

show changes in economic activity some time after event occured because stats take time to collect
e.g GDP, unemployment, inflation

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18
Q

Coincedent indicators

A

Move closely with actual changes in level of economic activity, published regularly at shorter intervals
e.g shares

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19
Q

leading indicators

A

allow economic forecasts or predictions to be made about the likely future level of economic activity
e.g consumer confidence

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20
Q

4 phases of the buisness cycle

A

Expansion
Peak (sometimes boom)
Contraction
Trough

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21
Q

expansion as a phase in the buisness cycle

A

-economic activity gears up
-unemployment grows
-cyclical unemployment falls
-inflation starts to accelerate
-GDP starts to accelerate

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22
Q

Peak (sometimes boom) as a phase in the buisness cycle

A

-after an expansion, economic activity reaches a upper turning point
-unemployment us at its lowest
-GDP has reached its maximum
-Inflation accelerated due to shortage

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23
Q

contraction as a phase in the buisness cycle

A

-GDP slows
-unemployment rises
-inflation rates slow

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24
Q

trough as a phase in the business cycle

A

-GDP rate very slow or negative
-unemployment extremely high as firms cut output
-inflation lowest or negative

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25
Ideal level of economic activity is called
economic stability: happens when australia is meeting its macroeconomic targets
26
Australias macro economic targets
Economic growth=3% inflation=2-3% Unemployment=4-4.5%
27
stagflation
when economic growth low and employment is high but inflation is also high
28
circular flow diagram definition
describes how money, resources and final products move around the economy
29
steps of circular flow digram (1 to 4)
1. Households provide resources (land, labour, capital, marginal) to producers 2. producers pay households in return for their resources (income) 3.households demand g/s (expenditure/ consumption) 4.in return for expenditure, producers provide households with finished products (production)
30
5 sector flow diagram steps from 1 -4
Flow 1= resources provided to producers, from households to business sector flow 2= income paid to households, from buisness sector to households flow 3 total spending on australian production =Household sectors income to consumption, this can go through leakages (slow AD (Savings-financial sector, Taxes-govt. sector, imports-external sector) or through Injections (boost AD (Investment-financial, Govt spending-govt. sector, exports (external sector)) flow 4= from buisness sector to households, products sold to households
31
Leakages (Financial sector)
Households choose to save money in a bank instead of saving it (savings) firms may choose to borrow money from this to invest in capital (investment)
32
Injections (Government sector)
workers must pay some of their income to the government in the form of tax. The govt. uses their revenue to purchase products that help the economy e.g transfer to disadvantaged households who will then spend it (govt spending)
33
Injections ( External sector
some people spend money on products not produced in australia, so money hence flows out (imports) in a similar way some foreigners buy australian products and money flows in exports
34
Household sector
Australias population, some supply or sell resources for income
35
Buisness sector
Demand/ purchase resources from households to convert to finished products
36
The 4 Flows (Flow 1)
Available supply of resources, households supply resources, buisnesses later convert this to finished g/s
37
The 4 flows (flow 2)
total incomes or the demand for resources -demand for resources by the buisness sector (flow 1+ 2 are equal in value)
38
The 4 flows (flow 3)
total expenditure or AD -represents total value of all types of demand or spending on aus made g/s measured over a period
39
Using the model to explain changes domestic economic activity
1. level of aggregrate demand 2. level of aggregrate supply
40
1. Level of agreggrate demand (increasing AD)
AD determines actual short term cyclical level of economic activity: -short term cyclical changes in AD cause the actual level of economic activity to either rise/fall -rising economic activity-lower leakags and higher injections, supply lifts their output as they are scared of a shortage, creating more jobs
41
1. level of Aggregrate demand (decreasing AD)
slowing economic activity: -reflects higher leakages and lower injections -suppliers decrease supply and discount prices -demand for resources fall, unemployment rises and income decline
42
In the short term (Agregrate demand)
Value of AD (made of (C+I+G+x-M) affects the value of GDP and national income
43
2. level of aggregrate supply
aggregrate supply can influence potential level of economic activity in the longer term -agreggrate supply can keep growing, only if buisnesses have acess to greater volume of resources if they use current resources more efficently -aggregrate supply will lower if reduced acess to resources or if buisnesses close down rather than expand
44
In the long term (Agregrate supply)
AS (determined by resources availible) - affecs the potential level of GDP
45
government consumption (G1)
continous payments the government makes e.g wages to administrative staff
46
Government investment (G2)
47
influences on the economy
-cash rate (ability to spend) -exchange rate -wages growth -income tax
48
All components of AD
-private consumption (C) -private investment- spending by businesses on means to create g/s -govt. consumption G1 public expenditure on g/s used to help satisfy community needs e.g wages paid -govt. Investment G2 expenditure on equiptment needed for provision of public social and economic infastructure -net exports (x-m) -net increase in unsold business stocks=rep money that has been spend by firms to make items that have not yet been sold in current period of time
49
Reasons for volitility of AD
-components are unstable -components prone to fluctuation
50
factors may affect level of AD in economy
-household/ consumer confidence -household disposable income -rate of population growth -Intrest rates -Budgatery policy -economic activity overseas -business confidence
51
Household/ consumer confidence effecting AD
refers to household expectations about future income, employment and inflation -effects future decisions of households about wheather to spend on local/ foreign g/s or to save
52
Household disposable income can affect AD
money avilible to spend after tax -rise in disposable income accelerates C -low in disposable income decreases C
53
Rate of population growth can affect AD
more people can increase the need for more goods and services, aswell as more employment thus income to spend
54
Business confidence effect on AD
wheather firms are feeling pessimistic/ optimistic about future sales and profits -Effects (I) - businesses will invest/ buy more -if optimistic businesses will spend more
55
Intrest rates affecting AD
cost of borrowing money -influenced by RBA -influences (I) as if low businesses will invest and buy more -affects (C) as can make it more likely or less likely for consumers to borrow
56
Intrest rates can also effect
employment as if inflation is too high, RBA reduces monetary policy potentially causing unemployement
57
intrest rates also effect
income= decrease/ increase= effects income GDP= more / less likely to spend etc.
58
Budgatery policy can affect AD
changes in expected govt. recipests from taxes and outlays on g/s for upcoming year
59
Budget surplus
value of tax and other recipts exceed outlays
60
Budget deficit
value of outlays exceeds reciepts
61
Economic activity overseas can affect AD
in countries like: -china -japan -us this means: may influence level of overseas spending on x and may influence levels of forgeign (I)
62
Terms of trade as a factor of AD
measures ratio of avg. prives world is prepared to pay us for exports against the avg. price we pay world for imports
63
what AD factors effect housholds (C)
-consumer confidence -disposable income
64
what AD factors effect Business Investments (I)
-business confidence -intrest rates -changes in company tax rates
65
what AD factors effect Governement (G1 and G2)
-domestic economic conditions -budgetary policy
66
What AD factor effects Net overseas or external spending (X-M)
-exchange rate -overseas conditions
67
Steps of how strong AD changes the economy
step 1= stronger AD, increases business confidence, consumer condidence step 2= impacts inflaction, more demand causes an increase step 3= impact on production, firms try to increase production, GDP accelerates upswing of the business cycle step 4= impact on unemployment, stronger AD, increasing production requires more individuals step5= impact on incomes and living standards, increase material living standards, lower unemployment may help non material (mental health)
68
steps of Weaker AD
step 1= weaker AD step 2= impact inlfation, as consumers demand less producers decrease prices leading to decreased inflation step 3= impact on production, firms will try to cut production GDP will slow, leads to slowdown/ contraction step 4= impact on unemployment, weaker AD causes firms to purchase less, leading to increased unemployment step 5= impact on incomes and living standards, -purchasing power falls -incomes decrease -employment decreases
69
Aggregrate supply
combined production levels all the nations buisnesses means and over a period of time
70
AS is limited to its
-quality (efficiency + production) -quantity (volume)
71
Factors affecting AS
-quality / quantity of: land, labour and capital -production costs -business costs -climactic conditions -technological change -exchange rate -interuptors of international supply -govt. regulations
72
Quality/ quantity of Labour resources affecting AS
quality/ quantity of labour resources may be influenced by: -levels of education -demographics -proportion of population available to work
73
Quantity/ quality of natural resources availible affecting AS
rate of new discoveries, relative to depleation rate of known mineral etc. -use of sustanable land management practices in farming and other industries -application of technology in farming
74
production costs that affect business profitability affects AS
can only create profit if production costs are low , affected by; -level of labour costs -changes in labour productivity -level of intrest rates -adaquacy and efficency of national infastructure -costs of raw materials
75
quantity and quality of capital resources effect AS
may be influenced by: -level of intrest rates -levels of local or forgeign investments -rate of company tax -extent nations physical capital incorporates latest technology
76
climactic conditions affect AS
-better climactic conditions= more output -worse climactic conditions= less output, can destroy farms, land and economic infastructure
77
productivity driven by technological change can affect AS
-driven by research and development -application of new productivity speeds up production, lowers costs and improves competition
78
labour productivity is measured through
GDP per hour worked
79
Multifactor productivity is measured through
value of gDP produced per unit of all types of resources or imports used to produce a good (land, labour and capital)
80
Exchange rates can effect AS
-affects availibility to cover production costs and profitability -lower exchange rate raises prodcution costs (have to pay more for imported goods etc) -if exchange rate is high=reduce costs and means lower productivity costs low= increase costs and cause higher productivity costs
81
Interruptions to international supply chains can affect AS
-many g/s are made from resources imported/ exported. Without good supply chains this limits productive capacity and levels of GDP
82
Govt. regulations and policies affect AS
govt. use policies to help increase efficency, these policies include: -environmental policies -immigration policies -govt. invention in national infastructure
83
How does a favorable change in AS effect the economy (in steps)
step 1. Greater acess to resources and more profitability step 2. Impact on inflation: lower production costs means businesses can sell g/s for lower, decreasing inflation step 3. impact on production, expansion of businesses step4. impact on unemployment reduced step 5. Impact on incomes and living standards: slower inflation, lower unemployment
84
How does less favorable AS factors affect the economy (steps)
step 1= less favorable, reduced acess to resources and lower profitability step 2.= impact on inflation: increase in inflation as production costs increase step 3. impact on production: less favorable conditions create higher costs leading to less expansion and more buisness closure step 4: impact on unemployment: firms have weaker profit so will not employ more people step 5: impact on incomes and living standards= increase inflation, increase unemployment
85
3 reasons for a negative sloping AD line
-purchasing power effect, higher prices throughout economy eat into purchasing power of peoples nominal level of income, contracting what they can buy -import substitution effect, inflation causes Aussies to buy more imputs -Intrest rate effect, when inflation arise, inrest rates rise, causing a decrease in spending
86
Sections of supply curve
-horizontal section: low levels of output/ supply, plenty og unused productive capacity -vertical section:at opposite extreme, no used productive capacity, national production at its physical limit -intermediate section or elbow, between vertical and horizontal, increases gradual onset of full employment and labour
87
Effects of changes in Equilibrium level of domestic economic activity
-deficit AD and recession slower GDP growth higher syclical unemployment lower demand inflation -Excessive AD and boom maximum GDP growth very low cyclical unemployment rapid demand inflation
88
Ideal AD and domestic economic stability
-strong and sustainable rate of economic growth -full employment -low inflation and prices
89
Equilibrium can be changed by new conditions that shift AS curve such as...
-more favorable agreggrate supply conditions: -stronger and more sustainable rate of economic growth -slower cost inflation -lower structural unemployment and more jobs
90
Applying the AS and AD diagram to Govt. policy
1. aggregrate demand or macroeconomic policies used to try and steer level of national spending and economic activity 2. Aggregrate supply policies seek to improve aggregrate supply conditions
91
how does one calculate gross domestic product
-summing totoal value added in production by all producers -adding up totoal value of all income generated and recieved by individuals and businesses -adding total value of spending or expenditure by consumers, businesses and governments
92
The way the ABS calculates australias GDP
using: -income -production -expenditure -averadge of all these three equal GDP
93
equation to adjust GDP at current prices to chain volume GD[ (real GDP)
chain volume GDP= price index in base of reference year/ price index in year to be adjusted x GDP at market prices in year to be adjusted/ 1
94
Limitations of using GDP as a measure of economic growth
-some non market production is exluded (DIY, black market) -some must be estimated -quality changes in g/s are not always reflected

Economics (5 decks)

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