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Economics units 1&2 > UNIT 2 AOS 1 PART 1 > Flashcards

UNIT 2 AOS 1 PART 1 Flashcards

1
Q

Define Aggregate demand

A

the total expenditure, consumption and investment on g/s produced in the economy and overtime will equal production

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2
Q

Aggregate demand equation

A

AD = C + I + G + (X-M)

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3
Q

Aggregate Supply def

A

Total volume of g/s that producers are prepared to supply for the market

related to PRODUCTIVE CAPACITY (how much we can produce)

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4
Q

define: business cycle

A
  • movement in economic activity is an aggregate
    • summarises the movement of economy activity overtime
    • has 4 phases
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5
Q

Characteristics of boom/peek

A
  • Excessive spending, Consumption, expenditure

- Low unemployment

  • - High inflation, excessive use of resources
  • Not good, achieve intertemporal efficiency

- High economy growth

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6
Q

Characteristics of contraction

A

- dropping economy growth

- rising unemployment

  • e.g., private school tax increasing (which is bad)

- consumption slow

inflation may fall

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7
Q

Characteristics of a Trough

A

- Low inflation
- High unemployment
- Low economy growth
People not spending money

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8
Q

Characteristics of a Expansion

A
  • Increase production
  • Increase income
    **- High unemployment
  • inflation may rise**
  • Increase consumption
    - Rise in economy growth
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9
Q

Circular flow def

A
  • detailed map of interrelationships between economic agents
  • how they impact economic activity
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10
Q

Economic growth
- the def

A

is the rate at which economy activity has grown over time and is most commonly determined by changes in the real value of production from one period to another.

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11
Q

Increase in eco growth

benefits of increase in eco growth

A
  • Increases opportunity for jobs
  • Improve MLS (greater access to G&S)
  • Lower crime rates
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12
Q

Increase in eco growth

costs of increase in eco growth

A
  • Over use of finite resources
  • Less leisure time and work life balance
  • Increase environmental pollution = decreasing NMLS
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13
Q

Limitations of econoimc growth

as a measuring tool

A
  • it excludes non-marketed G&S
    ○ e.g., baby sitting, tutor
    • Fails to capture purchasing power of incomes
      ○ does not measure income directly
      ○ income does not match inflation
    • Doesn’t measure NMLS factors
      wellbeing could be shit but GDP can be high
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14
Q

Interest rates

What? Type of indicator? Componets impcated?

A
  • Cost of borrowing money
  • Lagging indicator (ppl do not respond fast enough)
  • C + I
  • for C impacts lower discretionary income
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15
Q

Consumer confidence

What? Type of indicator? Componets impcated?

A
  • confidence for the future econoimcally
  • Lagging
  • C + I
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16
Q

Domino’s for AD

A

C + I + G(G1 + G2) + XM
= AD
= PRODUCTION
= real GDP
= Economic growth

17
Q

Circular flow model
- Name the 4 flows

A

flow 1: Home -> Business | factors of production
Flow2: Business -> home | Income
Flow 3: Home -> business | total spending of production
Flow 4: bus -> home | production of final G+S (real gdp)

18
Q

Define Household spending (c)

Def and factors that influence

A
  • Total value spent on g/s in household sector
  • Food, education, utilities, entertainment, transport
  • around 60% of AD

Factors that influence:
- Income
- Inflation
- Interest rates
- Consumer confidence
- Trends

19
Q

Business spending (I)

def and factors

A

The purchase of new goods and services for businesses as well as addition to inventories (or stock)

    • Reinvest back in business
  • Mostly money spent in the business sector
  • vehicles, Inventory, facilities (new)
    PLUS NEW HOUSE BUILDS (creating economic benefit - buying does not include to GDP)
  • Inflation
  • Gov policies
  • Interest rates
  • Trends
21
Q

Government spending

def(G1 and G2) and factors

A

G1 - day to day spending

(salaries, coffee/biscuits, paper, etc.) - keep current government department running

G2 - Investment spending

(roads, ports, railways, public transport, education, etc.) - something large that adds to the economy (like investment spending)

Factors:
- Economic growth and EA

21
Q

Net exports (XM)

def and factors

A

“international trade on the overall demand for a country’s goods and services.”

+X = Exports (selling Australian goods and services - can’t touch and see (eg education) overseas)
- exports of Australian g/s
- spending by foreign households, businesses and governments
-M = Imports (eg tech, cars)
Spending on imports

Factors:
- War
- Exchange rate
- Other countries do bad things can also be good for us

22
Q

Leakages in circular flow model

A
  • savings
  • Taxes
  • Import spending*

*Import spending spending money outside of Australia (not going into our economy - NOTE it is going to AD)

23
Q

Injections in circular flow model

A
  • Investment spending
  • Government spending
  • Export spending

*export spending is where people spend money into Australia (not going into our economy - NOTE it is going to AD)

24
Q

Unemployment rate

What? Type of indicator?

A
  • People who are willing and able to work (within a week) but don’t have a job’
  • LAGGING
  • business cycle
25
Q

Disposable income

What? Type of indicator? Componets impcated?

A
  • income after everything (including day to day pay and mortage)
  • Coincident (instant) -> once have money spend
  • C + I
26
Q

real GDP

A

Real GDP is the total volume of goods and services produced that are adjusted for inflation

27
Q

real GDP per capita

def + diff (when compared to real GDP)

A
  • [the diff] GDP per capita tries to be more specific on how much the country benefits
  • how much is spread per person (GDP/population)
  • real GDP: the final value of g&s produced in an economy over a period of time that does not consider inflation
28
Q

Inflation

What? Type of indicator?

A
  • Measured by real GDP
  • the average increase in the price of goods and services overtime.
  • lagging
  • Business cycle
29
Q

Exhange rates

What? Components impacted? AUD apreciates then what?

A
  • Coincident (instant)
  • X and M
  • value of export g/s
  • if AUD is high (appreciates)
    = :( exports - selling g/s
    = exports now expensive
    = :) imports (cheaper imports) - getting g/s
    = increase demand
    = overall decreases XM (AUS is mainly gets money from imports)
    E.g., transfer AUD to USD: AUD is now worth mor

= ☹ exports (selling) - “appear more expensive”
= ↓exports relative to imports
= ↓XM (exports relative to imports)
= ↓AD
= ↓ production
= ↓ growth through particular industries

Economics units 1&2 (6 decks)

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