U3 AOS2 Flashcards
What are living standards
= aggregate welfare of ppl in country e.g Aus, made up of material + non material factors
What are material living standards
= refer 2 lvl of economic wellbeing of individuals + qty of tangible / physical g/s available 4 each person 2 consume
(tangible factors)
What are non material living standards
= quality aspects of a person’s daily existence (intangible factors)
Factors affecting MLS + acronym
PEACLL
1) access 2 g/s -> real gdp per capita
2) environmental quality
3) physical + mental health
4) life expectancy
5) crime rates = inc crime rate -> inc insurance premium
6) literacy rates -> inc employment opportunities
Factors affecting NMLS + acronym
PEACLL
1) access 2 g/s -> satisfaction
2) environmental quality -> -ve externalities
3) physical + mental health
4) life expectancy
5) crime rates
6) literacy rates
What are the conflicting relationships b/n MLS and NMLS
- Environmental trade off
- Health + social trade off
- Material trade off
What is GDP and the equation for gdp
= final market value of all g/s produced in Aus economy over a given period of time
GDP = C+I+G+(X-M)
What is real GDP
= uses prices from previous period + applies them 2 current period volumes
What is gross national expenditure (GNE)
= total expenditure by Aus on g/s produced anywhere
GNE =C+I+G
What are the 4 flows of the economy
1) flow of available supply of resources
2) flow of demand for resources
3) flow of total expenditure of AD
4) flow of final g/s supplied
What are leakages
= part of income earned by households x immediately spent on Aus g/s, instead diverted through financial, government and or external sectors
What is the financial sector
= savings + investment -> money used in C or I
What is the government sector
= taxes + gov.t spending on infrastructure / via C once welfare transfers spent
What is the external sector
= spending on M which dec AD + spending on X that inc AD
What is aggregate demand
= total value of all expenditure on final finished g/s produced by a nation + measured over a period of time
=gdp
What is the AD equation
= (C+I)+(G1+G2)+(X-M)
What is private consumption expenditure
= total value of all expenditure on individual + collective goods incurred by resident households + xprofit institutions serving households
60% of AD
What is private investment expenditure
= expenditure with purpose of expanding productive capacity + productivity of firms
(15-20%) AD
What is government expenditure
-> includes expenditure by all lvls of gov.t
G1 = current expenditure -> g/s x in capital nature i.e health, edu, defense
G2 = capital expenditure -> g/s in capital nature i.e physical hospitals, roads, schools (infrastructure)
What are exports
= spending on exports by foreign economic agents
What are imports
= spending on imports by Australian economic agents
What are factors that impact AD
1)Inflation
2) Disposable income (gross income - income tax)
3) Interest rates
4) Consumer confidence
5) Business confidence
6) Exchange rates
7) Levels of economic growth
What is aggregate supply
= represents the total volume of g/s that all suppliers have produced + supplied over a period of time
-> influenced by willingness + ability of p’er 2 produce
What is production
= process of converting resources + inputs into g/s / total volume of g/s produced over a given time period
What is productivity
= measured by the output per unit of input
What is productive capacity
= point @ which production (GDP) is occurring @ maximum lvl possible in an economy
What are the factors that affect AS
1) Inflation
-> S.T = inc profit t/f inc willing + able
-> L.T = inc wages + expenses t/f overall x affect on AS`
2) Qty of factors of prod
3) Qual of factors of prod
4) Cost of production
5) Tech changes e.g NBN
6) Productivity growth
7) Exchange rates
-> Depreciation = inc cost of imports
-> Appreciation = dec cost of imports
8) Climatic conditions
What is the optimal rate for strong + sustainable economic growth
= 3-3.5%
What is the optimal unemployment rate
= 5%
What is the optimal inflation rate
= 2-3% over the median term
What is disposable income
= total income household received for participation in the production process plus government transfer less direct tax
What is discretional income
= disposable income available 4 consumption following the payment of all non avoidable expenditures e.g interest rates affect discretionary income, not disposable income
What is the business cycle
= cyclical movement of economic activity over time
-> Peaks, contractions, troughs, expansions
What is the nature of a peak
- strong rates of eco growth
- high levels of inflation
- low levels of unemployment
- spending + confidence are high
- production is strong + capacity is heavily utilised
What is the cause of a peak
- high c’er + bus confidence
- high prosperity 2 spend / take on new debt
- fall in household savings ratio
- high levels of global economic growth
- fall in leakages relative 2 injections
What are the issues of a peak
- if a “boom” it may be unsustainable
- inflationary pressures especially if capacity constraints
- asset prices can inc rapidly
- inc current account deficit
What is the nature of a contraction
- slowing rates of economic growth
- decreasing lvls of inflation
- decreasing lvls of unemployment
- inc underutilisation rate, in particular labour market
What is the cause of a contraction
- Due 2 high inflation, capacity constraints + higher interest rates, it will correct itself
- inc volume of production becomes difficult
- inc inflation
- leakages start to rise and injections fall
What is the nature of a trough
- minimum point of the cycle
- low lvls of production = high unemployment
- low inflation
- underutilisation of capacity
- leakages higher than injections
What are the causes of a trough
- low levels of spending due 2 low c’er confidence
- high levels pf household saving due 2 dec c’er confidence
- low levels of investment due 2 low bus confidence
- low levels of disposable income
- slow rates of economic growth
What is the nature of an expansion
- Inc levels of production
- inc job vacancies t/f dec unemployment
- inflationary pressures building in the economy
What are the causes of an expansion
- inc c’er + bus confidence
- inc consumption + investment expenditure
- inc gov.t expenditure
- low interest rates
What is economic activity
= refers 2 the expenditure, production + income that takes place in an economy when g/s are produced + sold
What is gross national income
= measurement of a country’s income including all income earned by a country’s residents, business + earnings from foreign sources
What is the goal of strong and sustainable growth
= the government’s goal 4 strong + sustainable growth is 2 achieve the highest growth rate possible (real GDP of 3-3.5%) consistent with strong employment growth but without running into unacceptable inflationary, external and or environmental pressures
What is sustainable growth
= growth / economic development that meets the needs of the present without compromising the ability of future generations 2 meet their own needs so the achievement of intertemporal efficiency
What is nominal GDP
= $value (final market value) of g/s produced in a period of time, which depends on the volume of what was produced + the price of what was produced
What is real GDP
= final market value of g/s using previous period’s prices t/f adjusting for inflation
What is the difference between nominal and real GDP
= if inflation is adjusted for
What is the equation for measuring quarterly GDP growth
= (GDP2-GDP1) / GDP1 X 100
Reasons to pursue economic growth
1) Growth in real income
-> from inc production -> inc labour t/f inc incomes -> inc M + NMLS
2) Lowering the unemployment rate
-> inc domestic production requiring inc labour
3) Inc ability of gov.t 2 provide essesntial services + avoid inc debt levels
-> inc employment -> inc tax revenue
-> overall link is the improvement 2 L.S that they bring
What is jobless growth
= inc output achieved via inc productivity of existing inputs so gov.t needs 2 ensure growth rate exceeds rate of growth in productivity
What is greater than population growth
= economic growth needs 2 exceed population growth rate, best measured by real GDP per capita
Consequences of a growth rate below 3%
- dec growth in real income, potentially no growth
- inc / stagnant unemployment rate
- cause a budget deficit t/f gov.t x offer services + inc debt
Consequences of a growth rate above 3.5%
- Unsustainable
-> can create inflationary pressures that negatively impact real income growth
-> can create external pressures
-> can create environmental pressures from depletion of natural resources + degradation of environment
What does it mean by employed
= when someone 15 years of age and older is working more than 1hr a week in return 4 some form of remuneration
What does it mean by unemployed
= when someone is 15 and over without work or working less than 1hr per week, + actively seeking employment / more work
What is hidden employment
= unemployed x included in calculation of unemployment as they have given up looking for work
What is long term unemployment
= being unemployed for more than 12 months
What is underemployement
= individuals who have a job h/r, they would prefer to be working more hrs + t/f unemployed to an extent
What is full employment
= the level of unemployment that exists when the gov.t economic growth goal is achieved + where cyclical unemployment is non existent, generally accepted 2 be 4-4.5% non accelerating inflationary rate of unemployment (NAIRU)
How to calculate the labour force
L.F = employed + unemployed
How to calculate the unemployment rate
U.R = unemployment / labour force x100
What is the labour force underutilisation rate
= represents the proportion of the labour force that is “underutilised”, the proportion of individuals x working the number of hrs they would like 2
How to calculate underutilisation rate
Under R= (Unemployed + underemployed) / labour force x 100
What is the labour force participation rate
= measures the % of the working age population who are either working / actively seeking employment
How to calculate the labour force participation rate
LPR = Labour Force / Working age population x 100
What is structural unemployment
= skills of the unemployed do x match the skills required by the economy
What is seasonal unemployment
= where a person is unemployed b/c their skills are only demanded during certain times of the year
What is frictional unemployment
= where a person is unemployed 4 the period of time while they’re moving from 1 job 2 another
What is hardcore unemployment
= where a person is unemployed due 2 mental, physical, or other characteristics that prevent them from receiving job offers
What is cyclical unemployment
= unemployment that occurs when the economy is x operating @ its full capacity due 2 AD deficiencies
What are the consequences of unemployment
- loss of GDP
- loss of tax revenue
- greater income inequality
- reduction in living standards
What is the goal of low inflation
= 2 achieve a sustained inc in general lvl of prices of b/n 2-3% on average over the medium term
What is inflation
= sustained inc in general / average price levels over time
What is disinflation
= dec rate of inflation
e.g quarter ending in march 2017 inflation is 1.9% and then the quarter ending in June 2017 comes in at 1.5%
What is deflation
= dec in the average price lvl over time. Literally a -ve inflation figure
What is consumer price index (CPI)
= most reliable indicator of inflation that determines change in prices of g/s purchased by average Aus household
-> collects prices of 100000+ g/s (basket) which is then weighted 2 reflect relevant importance 2 each Aus household
How to calculate inflation from the consumer price index
I.R = (CPI end - CPI start) / CPI start X100
What is CPI headline inflation
= capture price movements of all g/s contained in the CPI (normal)
What is CPI underlying inflation
= headline inflation that excludes volatile items i.e fruit, veg, fuel.
What is the RBA underlying trimmer mean
= removal of top and bottom 15% that has inc most / least
What is the RBA underlying weighted mean
= price change that sits in the middle of the range / 50th percentile
What is demand inflation
= inflation caused by changes in factors that inc / dec AD
What is cost inflation
= inflation caused by changes in factors that impact on AS / supply side pressures / capacity constraints
