unit 2 aos 1 economic activity

Question 1

economic activity

Answer 1

occurs when resources are used by an economy to produce goods and services. In the process, this also affects inflation and unemployment rates in an economy.

Question 2

purpose of economic activity

Answer 2

is to use resources efficiently to produce and sell those goods and services that best help to maximise the general satisfaction of society wants and wellbeing. Consumption is the ultimate goal of economic activity.

Question 3

affect of increased economic activity on material living standards

Answer 3

tend to lift material living standards. Due to higher production resulting in increase jobs and income, boosting consumption spending.

Question 4

affect of decreased economic activity on material living standards

Answer 4

decrease access to goods and services due to lower production

Question 5

affect of increase economic activity on non material living standard

Answer 5

increase employment and income reducing stress and social isolation

decrease in environmental outcomes due to increase pollution and increase depletion of non renewable resources.

Question 6

affect of a decrease of economic activity on non material living standards

Answer 6

-increase unemployment and increase stress and homelessness. Undermining quality of life.

Question 7

aggregate demand

Answer 7

total annual value of spending on Australian made goods and services measured over a period of time

Question 8

3 of leakages examples

Answer 8

-taxes
-saving
-import spending

Question 9

3 examples of injections

Answer 9

-investment spending
-government spending
-export spending

Question 10

expenditure

Answer 10

Expenditure refers to payments made or liabilities incurred in exchange for goods or services.

Question 11

affluenza

Answer 11

is a term used to describe a situation where making money and consuming goods and services is an obsession that hurts individuals and others around them.

Question 12

aggregate demand factors

Answer 12

are the conditions affecting total spending or demand

Question 13

material living standards

Answer 13

are affected by the annual average level of income and consumption per person per year.

Question 14

non material living standards

Answer 14

reflect various elements that affect our quality of life.

Question 15

the five-sector flow model

Answer 15

is a diagram that simplifies the operation of the economy. It shows how the main parts of an economy interact to produce and distribute goods, services, and incomes.

Question 16

the five sector model has for main flowss…

Answer 16

-flow one is resources
-flow two is income
-flow three is spending
-flow four is production/GDP

Question 17

economic costs

Answer 17

• reduced capacity of future generations to enjoy reasonable living standards due to resource depletion and environmental issues.

-an acceleration of the inflation rate where higher prices may erode the purchasing power on incomes

• higher levels of structural unemployment resulting from the use of technology like robotics in manufacturing and workers lacking the necessary skills to gain employment.

Question 18

environmental costs

Answer 18

• the creation of negative externalities such as pollution, global warming and climate change, destruction of native habitats, loss of life in whether events, food insecurity, all of which lower our quality of life.

-degrading of the quality of common access resources on which we all depend.

Question 19

social costs

Answer 19

• reduced leisure time as people work more and pursue material goals.

-reduced health due to increase stress and effects of pollution and climate change

-harm to families and society in general due to under-parenting caused by work

-increased inequality in the distribution of goods, services and income given some government measures that unfortunately make the tax system less progressive, and tax cuts have led to underfunding of welfare, educational health for those on lower incomes

-affluenza -obbsession with pursuit of material goals.

Question 20

what are the limitations to real GDP and real GDP per head to measure living standards

Answer 20

A weakness of real GDP is it fails to allow for a country’s population size.
real GDP per head fails to account for quality of life or non-material living well-being.

Question 21

why is real GDP per capita a poor measure of material living standards

Answer 21

it fails to consider how unevenly distributed goods and services are- it’s only an average.

doesn’t capture negative externalities such as climate change

Question 22

limitations to real GDP

Answer 22

statistics do not show the value of all economic activity such as home production such as the cash economy, this means that the economy is an underestimation of the quantity of goods and services produced and available for consumption.

Question 23

alternative measurements of economic growth

Answer 23

• green GDP
  -Gross National Happiness
  -Measures of Australias progress
  -human development index

Question 24

common access goods

Answer 24

things all members of society share and deepend on such as air

Question 25

cyclical unemployment

Answer 25

individuals lose their jobs due to weak AD and a slowdown or recession

Question 26

disposable income

Answer 26

is money available for households to spend after welfare and tax pay. It affects AD.

Question 27

domestic economic stability

Answer 27

is the ideal economic position for an economy to be in. Conditions do not get better than this, where simultaneously there is a strong and sustainable economic growth rate. (around a 3 per cent rise in GDP per year) full employment, (around 4 -4.5 per cent unemployment rate) and low inflation ) and an annual rise in general prices averaging 2-3 per cent.)

Question 28

Exchange rate of the A$

Answer 28

relates to the value of an $A when it is swapped for another currency in international transactions. Its level affects the value of exports and imports and hence AD

Question 29

expansion

Answer 29

or the recovery phase of the business cycle is where the level of real GDP is rising and growth rates are increasing towards perhaps 3 per cent per year.

Question 30

export spending (x)

Answer 30

represents overseas spending on Australian-made goods and services. This is an injection of the circular flow model that adds to AD

Question 31

government spending (g)

Answer 31

represent public sector outlays that are designed to help satisfy the needs and wants of the community for goods and services. This is an injection and adds to the AD

Question 32

green GDP

Answer 32

is a measure of a nation’s economic growth adjusted downwards for environmental impacts. Some believe this more accurately reflects society’s living standards than traditional GDP.

Question 33

GDP

Answer 33

is a quarterly or annual measure of the value of finished goods and services produced by a nation. on the circular flow model, is also equal in value to AD and total income.

Question 34

import spending (M)

Answer 34

is an expenditure by Australians on foreign made goods and services, which is designed to help satisfy needs and wants. It is a leakage on the circular flow model, slowing AD.

Question 35

inflation

Answer 35

refers to a situation where most prices paid for a basket of consumer goods and services are rising over a period of time, causing a drop in purchasing power of money. May be the result of higher costs of production, or general shortages of goods and services due to too much spending.

Question 36

injection

Answer 36

are elements in the circular flow model, government spending, and export spending, which act like an accelerator and add to the total value of spending on Australian-made goods and services.

Question 37

increase in intrest rates

Answer 37

the incentive to save thus reducing spending and decreasing AD

Question 38

lagging indicators

Answer 38

measurement of an economy that only tells us the level of activity that occurred some time ago.
GDP

Question 39

leading indicator

Answer 39

measures that can help predict where the economy may be heading.e.g consumer confidence

Question 40

coincident indicators

Answer 40

are measures of the economy that move very closely with the actual change in the level of economic activity. e.g. monthly retail sales.

Question 41

leakages

Answer 41

are elements of the circular flow model (e.g. savings/ S, taxes/T, and spending on imports (M) that slow down the total value of spending in our economy.

Question 42

negative externalities

Answer 42

costs transferred to a third party who was not directly involved in the economic activity as a result of the production and consumption of goods and services. e.g. global warming.

Question 43

private consumption spending (C)

Answer 43

represents household expenditure that is designed to help satisfy people’s immediate wants and needs for goods and services. It is the biggest single component of AD

Question 44

overseas economic activity

Answer 44

relates to whether globally, demand and economic conditions abroad are strong or weak. Its level affects the sales of Australian exports or injections and hence AD

Question 45

private investment spending (I)

Answer 45

is outlays by businesses for the purchase of machinery, technology and buildings used to help make goods and services. It is designed to help grow efficiency and expand a firm’s productive capacity by growing its physical capital resources.

Question 46

productivity

Answer 46

is an AS factor that is a measure of efficiency - that is how output is gained from a unit of resources or inputs used in production

Question 47

structural unemployment

Answer 47

can occur when firms change their production methods and use new technology to become more efficient. It can also occur when firms relocate overseas, or there is a mismatch between the skills possessed by unemployed workers and the skill required for jobs that are currently available.

Question 48

aggregate supply

Answer 48

can be defined as the total volume of goods and services that producers are able to supply or produce in an economy.

Question 49

real GDP per capita

Answer 49

is the value of nation out put measured over a period of time, after statistically removing the effects of price changes to reveal actual changes in the volume of goods and services.

Question 50

consumer price index

Answer 50

a family of indexes that measure price change experienced by urban consumers.

Question 51

common indicators

Answer 51

-the growth rate in economic activity reflected in AD and GDP

-unemployment rates

-inflation rates

Question 52

AD factors impacting consumption spending (C)

Answer 52

disposable income
-drop in disposable income slows private consumption, while higher disposable income increases consumption.

consumer confidence
-greater optimism leads to greater consumption spending and reduces saving. greater pessimism increases savings and slows consumption.

interest rates.
- higher interest rates encourage saving and discourage borrowing money to buy expensive consumer items such as housing. lower interest rates discourage saving and lift consumption spending.

rate of population
-a slower growth in population tends to slow consumption and AD

government budgetary policies
-cuts in personal income tac returns can help increase disposable income and increase consumption spending and AD

Question 53

AD factors impacting investments (I)

Answer 53

business confidence
- business pessimism leads to reduced investments in new equipment. while optimism leads to increased investment spending and AD.

interest rates
- higher interest rates discourage investment spending while lower interest rates encourage investment spending

company tax
-low tax rates for businesses help to lift after tax profits and hence encourage new investments for businesses to expand their operations. whereas, higher interest rates have the opposite affect.

Question 54

AD factors impacting government spending (G)

Answer 54

the level of unemployment
-G increases when the unemployment rate rises because through this the government can help lift AD and reduce the severity of a recession. in reverse, when inflation booms government may spend less money to help stabilise the economy

the level of inflation
- the level of g often decreases when inflation is rising to restrain AD

the speed of the population growth
-the level of G often rises when population growth is more rapid. this is because more community services are needed

concern about the level of government debt
- high debt levels will act to help slow down government spending.

Question 55

AD factors impacting export spending (X)

Answer 55

the exchange rate or the value of the A$
- A rising A$ tends to slow our exports because they become dearer to people overseas, while a fall in the A$ makes exports cheaper, leading to an increase in sales hence AD.

Overseas economic conditions
-A recession abroad tends to slow down overseas spending on our exports, while a boom overseas tends to raise the value of foreign spending on Australian exports

natural disaster
-severe whether in Australia may alter the nation’s capacity to produce exports.

Question 56

AD factors that impact imports (M)

Answer 56

the exchange rate or the value of the A$
-A fall in the exchange rate for the A$ tends to make imports dearer and less attractive for Australians to purchase, lifting AD while a rise in A$ tends to make imports cheaper and more attractive for local consumers, flowing AD.

local economic activity
- if there is stronger consumer and business confidence and high levels of economic activity locally, this tends to increase spending on imports where leakages slow AD. whereas weaker local economic conditions usually mean lower spending on imports.

consumer and business confidence

our inflation rate relative to that overseas.

Question 57

how labour resources impact AS

Answer 57

demographics and the population’s age
-immigration can increase the number and skills of the labour force
-in contrast, Australia’s ageing population causing labour shortages that limit the expansion of our productive capacity and the level of AS

Question 58

how capital resources can impact AS

Answer 58

investment levels
-The quantity and quality of capital resources are increased through high levels of private and government investments in new plants and equipment. Increase investments can come from foreign capital inflow used to set up or financial support new firms these grow productive capacity and AS

interest rates
-lower interest rates increase investments in new equipment increasing AS quality and quantity. while higher interest rates decrease growth in productive capacity and As.

technology and r and d
use of new technology can help increase the volume and efficiency of capital resources. adding to productive capacity and AS.

Question 59

how natural resources can impact AS

Answer 59

mineral exploration
-help us to find new deposits of minerals. increasing the quantity of resources available, hence growing productive capacity, AS and potential level of GDP.

land management
-Increasing land management increases productive capacity and our potential level of GDP.