Unit 2, AOS1 Economic activity and AD

Question 1

Economic Activity

Answer 1

The production, income and expenditure that takes place across the whole economy.

Question 2

Income

Answer 2

Total incomes that have been earned by those who have contributed to the production of the goods and services produced.

Question 3

Production

Answer 3

The total value of goods and services that are produced in the economy.

Question 4

Expenditure

Answer 4

The total spending undertaken on the goods and services being produced.

Question 5

Leakages

Answer 5

The removal of money from the economy.

Question 6

Examples of Leakages

Answer 6

Savings- money that is saved (x spent on g/s)
Taxes- money paid to govts in the from of tax
Imports- money spent on g/s produced overseas

Question 7

Injections

Answer 7

The addition of money from the economy.

Question 8

Examples of Injections

Answer 8

Investment demand- spending on capital items e.g machinery and factories
Govt spending- spending by govt on g/s
Export demand- money spent on Aus g/s by overseas residents

Question 9

If injections exceed leakages we can expect economic activity to rise:

Answer 9

See pg 8 in lesson 1 booklet

Question 10

If leakages exceed injections we can expect economic activity to fall:

Answer 10

See pg 9 in lesson 1 booklet

Question 11

Aggregate demand (AD)

Answer 11

The total expenditure on the goods and services produced in the economy over a period of time.

Question 12

Aggregate demand equation

Answer 12

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

Question 13

Consumption (C)

Answer 13

The total value of all expenditures on individual and collective consumption by resident households and non-profit institutions serving households. ( expenditure on food/car).

Question 14

Factors impacting C

Answer 14

-Disposable income
-Consumer confidence
-Interest rates
-Rate of population growth
-Budgetary policies affecting taxes and govt spending

Question 15

Investment (I)

Answer 15

The purchase of new equipment and plant, buildings, and vehicles. ( equipment to expand productive capacity eg. delivery truck).

Question 16

Factors impacting I

Answer 16

-Business confidence
-Interest rates
-Company tax rates
-Global economic conditions

Question 17

Government spending (G)

Answer 17

Includes all demand for goods and services by federal, state and local govts. G1= funding eg. of school. G2= Infrastructure eg. building school.

Question 18

Factors impacting G

Answer 18

-Level of unemployment
-Level of inflation
-Speed of population growth
-Economic cycle

Question 19

Net Exports (X-M)

Answer 19

Exports (X): expenditure on domestically produced g/s by foreigners.
Imports (M): expenditure on foreign produced g/s by members of an economy.

Question 20

Factors impacting X

Answer 20

-Exchange rate
-Overseas economic conditions
-Natural disasters and severe weather events

Question 21

Factors impacting M

Answer 21

-Exchange rate
-Trends in local economic conditions
-Consumer and business confidence levels
-Our inflation rate