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11 Economics > Unit 2 AOS1 > Flashcards

Unit 2 AOS1 Flashcards

1
Q

Define economic activities

A

When scarce resources are used to produce and sell goods and services in exchange for money in order to earn an income

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2
Q

3 components of economic activity

A

Production, income and consumption

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3
Q

What is production, income and consumption

A

The making of G+S, The reward for producing and selling G+S and Spending income on G+S in order to satisfy needs and wants

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4
Q

How does economic activity improves living standards

A

High levels of economic activity allow for higher consumption improving most material living standards

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5
Q

Define Real GDP and why its useful

A

The total value of production accounting for inflation, it’s useful for increasing accuracy on if the actual volume of G+S produced has increased

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6
Q

Define material and non material living standards

A

Material: An individuals access to G+S, affected by level of income and consumption pp py.

Non material: Factors affecting a persons life regardless of income

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7
Q

Relationship between materials and non-material living standard

A

Increased M living standards can improve NM living standards by satisfying needs and wants and creating leisure time.

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8
Q

Define aggregate demand and the equation

A

AD is the total expenditure on G+S in an economy AD=C+I+G+(X-M)

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9
Q

5 sector circular flow model flows

A

1: Household provide land, labour and capital resources to business.
2: Business provide income to household
3: Household spend on final G+S
4: Businesses supply final G+S

Leakages: Household to financial sector (Savings), government sector (Taxes) and overseas sector (Import spending)

Injections: These top businesses; Financial sector (Investment spending ding), Government sector (Government spending) and Overseas sector (Export spending)

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10
Q

Explaining increase/decrease in economic activity

A
  1. Businesses employ more resources, including labour, as they can increase output.
  2. There is a rise in the total value of incomes paid to those selling resources.
  3. Higher spending/AD is caused by increased injections relative to leakages leading to general shortages and lower levels of unsold G+S
  4. Producers try to lift national productions the total value of economic activity (GDP) rises.
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11
Q

Explain at contraction and trough of the business cycle

A

Production decreases, Unemployment increases, Wages decreas, Consumer spending decreases, Prices decrease, This is known as deflation
Over 2 terms = Recession

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12
Q

Explain the expansion and peak of economic cycle

A

Production increases, Unemployment decreases, Wages increase , Consumer spending increases, Prices increase.
Full PPF capacity = Boom (Unsustainable)

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13
Q

Government goals for the economy

A

Strong and sustainable economic growth (3-4%GDP growth), Low inflation (2-3%), Full employment (4.5% unemployment)

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14
Q

Monetary policy

A

Expansionary: RBA decreases cash rate target to promote Consumption and Investment Spending

Contractionary policy: RBA increases cash rate target to discourage Consumption and Investment Spending

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15
Q

Budgetary policy

A

Expansionary: Government increases Government Spending.
Government decreases tax rates to promote Consumption and Investment Spending

Contractionary: Government decreases.
Government Spending Government decreases tax rates to promote Consumption and Investment Spending

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16
Q

What is a leading indicator + examples

A

Forward looking indicators which provide insight into future trends or changes in economic activity.

Consumer Confidence Indexes and Business Sentiment Index

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17
Q

Lagging Indicators + examples

A

Backwards looking indicators which provide insight into what has occurred recently, due to time lag between the occurance of an event, and the collection of data associated with an event.
GDP growth rate, Level of employment, Rates of unemployment or underemployment, Rate of inflation, Average weekly earnings

18
Q

Coincident Indicators + examples

A

Provide an indication of what is occurring in the economy currently, and used to determine where in the business cycle an economy might be.

Interest rates, Sales volumes, Hours worked

19
Q

Consumption spending definition

A

Total spending on G+S made by household

20
Q

Investment spending definition

A

Purchasing new technology + resources to increase production of G+S

21
Q

Government expenditure definition

A

Total spending on G+S mad by federal, state and local governments

22
Q

Export spending definition

A

Expenditure by foreign residents on Australian G+S

23
Q

Import spending definition

A

Expenditure by local residents on Aus made G+S

24
Q

Define disposable income

A

Households income after misusing taxes

25
Q

Define population growth

A

Increase in number of people in a history

26
Q

What are company tax rates

A

Direct tax levied onto corporations

27
Q

Effect of stronger/weaker aggregate demand factors on economic activity

A

Strong aggregate demand will increase economic activity and therefore GDP and vice versa.

28
Q

Definition of aggregate supply

A

The total volume of goods and services that producers are able and prepared to supply to the market

29
Q

What is productive capacity

A

Maximum possible output of an economy

30
Q

Factors that affect aggregate supply and definitions

A

Labour: Quantity and quality of labour can impact productive capacity.

Natural: Mineral exploration (increases resources), land management (more efficient = grow productive capacity), weather conditions and climate change

Capital: Government provision of infrastructure and increase industry research, private business investment unto equipment. interest rates.

31
Q

Effect of favourable aggregate supply conditions on economic activity and domestic macroeconomic conditions

A

Increases EA
Higher business output + investment
Reduces cost push inflation
Increases competition
Creates jobs
Grows wages
Increases exports
Reduces imports
Chance of overproduction and income inequality.

32
Q

Effect of unfavourable aggregate supply conditions on economic activity and domestic macroeconomic conditions

A

Decreases EA
Lower business output + investment
Increases cost push inflation
Decreases competition
Can reduce jobs
Can neg impact wages
Decreases exports
Increases imports

33
Q

Ways to calculate GDP

A

GDP method, income method, spending method.

34
Q

Difference between GDP and real GDP

A

GDP is total value of G+S produced and sold over a given period of time, real GDP does this but adjusts for inflation.

35
Q

List the benefits of economic growth

A

Lowers unemployment (Increasing production = employment opportunities)

Increases personal incomes and material living standards ( economic growth > population growth = increased average incomes)

Improves government finances (Lowers unemployment = more people paying tax = government can provide better services = improved living standards)

Improves some aspects of non-material living standards (Increase leisure time, life expectancy, resources allocated to arts and education. Decrease demanding tasks)

36
Q

What is GDP per capita and why is it good

A

GDP per capita is the GDP of a nation divided by its population. This provides a better insight into individual material living standards.

37
Q

Problem with high economic growth

A

High economic growth is unsustainable and limits future room for growth as their is a limited number of resources available to grow the economy with.

38
Q

Define affluenza

A

Social condition that comes about from an individual’s obsession and single-minded pursuit of wealth and material things

39
Q

Negative aspects of economic growth

A

Economic growth driven by AD can increase inflation.
Create environmental problems (CC) due to over production.
Create negative externalities: CC and exploitation of workers

40
Q

Limitations of associating real GDP and GDP per capita with living standards

A

Only measures material living standards
Fails to consider income/wealth inequality
Does not include all economic activity
Some production is overestimated
Does not consider non-material living standards

41
Q

Alternative measures of economic activity and living standards

A

The Genuine Progress Indicator (GPI)
- Includes expenditure on goods and services to indicate material living standards. Social costs associated with unemployment, crime, problem gambling, excessive work, pollution etc.
Costs are subtracted from the GPI even if they contribute to national production.

MAP: Measures 4 domains; Society, economy, wellbeing, governance

HDI: Worldwide accepted method to measure economic development. Measures: Living standards, health and education. 0.00 = lowest, 1.00 = highest

11 Economics (6 decks)

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