U3 AOS2 - Domestic Macroeconomic Goals Flashcards
Material Living Standards refer to
The tangible aspects that impact on our wellbeing (eg. money, assets, wealth)
Non-material living standards refer to:
The non-tangible aspect that impact our quality of life. Eg. crime rates, education levels, leisure time, stress
The difference between material and non-material living standards is:
Tangibility
Aggregate demand refers to
The total value of all spending/expenditure in an economy over a period of time.
AD =
C + I + G + (X - M)
An increase in disposable income would
Increase private consumption spending and increase aggregate demand.
Factors which impact AD are
Disposable income, interest rates, business confidence, consumer confidence, exchange rates, economic growth overseas
An increase in interest rates would
Decrease C and AD
Decrease I and AD
An increase in consumer confidence would
Increase C and AD
An increase in business confidence would
Increase I and AD
An appreciation of the exchange rate would
Increase M and Decrease X, decreasing AD overall.
An increase in overseas economic growth would
Increase exports and aggregate demand.
Leakages refer to
Private savings, tax revenue and imports
Injections refer to
Private investment, government spending and exports
Households provide businesses with (Flow 1)
Resources
Businesses provide households with (flow 2)
Income
Aggregate supply refers to
The total value of production for all goods and services in an economy over a period of time.
The two main factors which impact aggregate supply are
Cost of production and efficiency.
If there was an increase in wage costs this would
Increase the cost of production and decrease aggregate supply
The four phases of the business cycle are:
Expansion, contraction, peak and trough
An expansion in the business cycle is consistent with
Rising inflation, rising economic growth, falling unemployment.
A contraction in the business cycle is consistent with
Easing inflation, declining rates of economic growth, rising unemployment.
The goal of strong and sustainable economic growth refers to:
The highest growth rate possible without causing unnecessary environmental, external or inflationary pressures.
Economic growth is measured by
Change in real GDP
Economic growth below the target range can
Lead to higher rates of unemployment, lower average incomes and worsened living standards.
Economic growth above the target range can lead to
Environmental damage from unsustainable use of resources.
Inflationary pressures due to shortages.
Economic growth can be calculated by
Year 2 - Year 1 / Year 1x 100
If economic growth in Year 1 was 100 and in year 2 it was 104, what is the rate of GDP growth?
4%
104 - 100
__________
100 X100
Inflation refers to
A rise in the general level of prices over time.
Disinflation refers to
When prices are rising at a slower rate than the previous period.
Deflation refers to
The general level of prices falling
The goal of low inflation refers to
The general level of prices increasing at 2-3% on average over time.
If the rate of inflation is 4% in one quarter and 3% in the next quarter is inflation, disinflation or deflation occurring?
Disinflation
A consequence of the inflation rate being too low is:
Delayed consumption
Businesses slowing production due to less profit motive
A consequence of the inflation rate being too high is:
Erosion of purchasing power.
Increased unemployment due to increased cost of production.
Lower living standards.
A wage price spiral.
Demand inflation refers to
When AD increases faster than AS which leads to widespread shortages and upward pressure on prices.
Cost inflation refers to
When increases in cost of production or adverse AS conditions are passed on to consumers through higher prices.
Headline inflation refers to
The standard rate of inflation measured by changes in the consumer price index (CPI)
The underlying rate of inflation refers to
The headline rate of inflation with the removal of any volatile price changes to gain a more accurate indication of price changes in the economy.
The goal of low inflation is
For the general level of prices to be rising at a rate of 2-3% on average over time.
The current rate of inflation as of March 2025 is:
2.4%
If inflation measures within the target range does that mean that the goal of low inflation is achieved?
Not necessarily as it has to be in the target range, on average over time.
If CPI is 100 in Year 1 and 104 in Year 2, what is the inflation rate?
4%
104 - 100
_________ x100
100
Unemployment refers to
Someone who is over 15 and actively looking for work in the survey week.
Employed means
That someone is 15 years and over and worked at least 1 hour in the survey week.
Underemployed means
That someone has a job but is working less than they’d prefer.
Long term unemployment refers to
Someone who has been looking for work for over 52 weeks.
Structural unemployment refers to
When adverse supply side conditions lead to unemployment via changes in business structure.
Cyclical unemployment refers to
Changes in the unemployment rate due to the fluctuations in AD and the business cycle.
The unemployment rate =
Unemployed
_______________ x 100
Labour force
The labour force is
All employed + unemployed people
The underutilisation rate is
Unemployed + Underemp
______________________ x100
Labour force
The Labour Force Participation Rate is
Labour Force
________________ x 100
Population over 15
Consequences of unemployment being too high include
Worsened living standards
Decreases in GDP
Consequences of unemployment being too low include
Higher rates of inflation
Lower living standards.
The goal of full employment is
To maintain the lowest unemployment rate possible without causing unnecessary inflationary or external pressures.
