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economics > unit 2 macroeconmics > Flashcards

unit 2 macroeconmics Flashcards

1
Q

micro vs macro examples

A

micro:
individual market
effect on price of a good
individual labour market
individual consumer behavior
supply of good

macro:
whole economy (GDP)
inflation
employment/unemployment
aggregate demand
productive capacity of economy

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2
Q

macroeconomics

A

considers the performance of the economy as a whole

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3
Q

examples of macroeconomics

A

economic growth
inflation
employment unemployment
trade performance with other countries
government economic polices
decisions made by RBA

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4
Q

economic activity

A

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

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5
Q

income

A

total income that have been earned by those who have contributed to the production of the good and service produced

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6
Q

production

A

the total vale of goods and services that are produced in the economy

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7
Q

expenditure

A

the total spending undertaken on the good and services being produced

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8
Q

macro conflicts

A

unemployment and inflation

economic growth and inflation

economic growth and the balance between exports and imports

economic growth and inequality

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9
Q

circular flow

A

income–>expenditure/spending—>production–>income

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10
Q

leakage

A

the removal of money from the economy

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11
Q

leakage (taxes)

A

money that is paid to the government in the form of tax

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12
Q

leakage (savings)

A

money that is saved rather than spent on goods/services

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13
Q

leakage(imports)

A

money that is spent on goods/services that have been produced overseas

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14
Q

injections

A

the addition of money from the economy

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15
Q

injection (investment demanded)

A

spending on capital items like machinery and factories

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16
Q

injection (government spending)

A

spending by government on goods/service

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17
Q

injection (export demand)

A

money that is spent on Australian goods/services by overseas residents

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18
Q

Trade off

A

all possible things we give up when we make decision to use our scarce resources to gain something else

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19
Q

injection>leakages

A

economic activity rises because more money entering system than leaking out

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20
Q

leakage>injection

A

economic activity falls because more money leaving the system than leaking out ??????

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21
Q

aggregate demand (AD)

A

the total expenditure on the good and services produced in the economy over a period of time

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22
Q

AD equation

A

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

AD= (C+I):private + (G1+G2):public+ (X-M): net overseas

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23
Q

consumption (C) in AD

A

total value of all expenditure on individuals and collective consumption by resident households and non-profit institutions serving households

60% of AD

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24
Q

examples of consumption (C) in AD

A

expenditure on consumer durables

expenditure on food

expenditure on single use products

expenditure on services

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25
Q

factors impacting consumption (C)

A

disposable income

consumer confidence

interest rates

rate of population growth

budgetary policies affecting taxes and government spending

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26
Q

factors impacting investments (I)

A

business confidence

interest rates

company tax rates

global economic conditions

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27
Q

Investment (I) in AD

A

the purchase of new equipment and plant, building and vehicles to expand productive capacity

15-20% of AD

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28
Q

government (G) components of AD

A

government spending which includes all demand for goods and services by federal, state and local governments

G1 and G2

20% of AD

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29
Q

G2: government investment expenditure AD

A

spending on capital goods like infrastructure and buildings

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30
Q

G1: government current (consumption) expenditure AD

A

spending on civilian goods and services, military spending, health, education, defense, civil servant salaries

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31
Q

factors impacting exports (X)

A

exchange rates

overseas economic conditions

natural disasters and severe weather events

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32
Q

factors impacting government (G)

A

level of unemployment

level of inflation

speed of population growth

economic cycle

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33
Q

factors impacting imports (M)

A

exchange rates

trends in local economic conditions

consumers and business confidence levels

our inflation rate

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34
Q

Exports (X) in AD

A

expenditure on domestically produced goods by foreigners

20-24% of AD

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35
Q

Imports (M) in AD

A

expenditure on foreign produced goods by members of an economy

20-24% of AD

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36
Q

what affects the AD curve shift to the right (increase)

A

higher consumer sentiment

increased business confidence

rising overseas economic activity

weaker Australian dollar

lower interest rates

cuts in taxes

increases in government spending

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37
Q

what affects the AD curve shift to the left (decrease)

A

lower consumer sentiment

decreased business confidence

falling overseas economic activity

stronger Australian dollar

higher interest rates

rises in taxes

decrease in government spending

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38
Q

factors influencing AD

inflation

A
  • Impacts purchasing power of economic agents - increase in inflation = higher
    prices - decrease or erodes of purchasing power - decrease in C
  • Impacts international competitiveness = increase in inflation - reduces Australia’s international competitiveness > decrease in X
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39
Q

factors influencing AD

Disposable income (Gross Income - Income tax)

A
  • Impacts purchasing power of consumers - an increase in real disposable income -> increase in purchasing power = increase in C
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40
Q

factors influencing AD

Interest rates

A
  • Impacts portion ot disposable income available for consumption (variable rate loans) - lower interest rates -> lower repayments on existing loans ->
    greater proportion of disposable income available for consumption = increase
    In C
  • Impacts the cash available to a business - cash flow effect (variable rate loans) - more cash available for I
  • Low interest rates > more attractive to borrow cash -> increase in C and I
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41
Q

factors influencing AD

Consumer confidence

A

General optimism or pessimism about the future state ot the economy and job prospects - from a consumers perspective

  • Increase in consumer contidence = increase in C
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42
Q

factors influencing AD

business confidence

A

General optimism or pessimism about the future state of the economy and ability to generate a profit - from a firm’s perspective.

  • Increase in business confidence = increase in I
    .
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43
Q

factors influencing AD

Exchange rates

A
  • Impacts international competitiveness - an depreciation of the AUD increase in international competitive = increase X and decrease in M
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44
Q

factors influencing AD

Levels of economics growth overseas

A
  • Increase in economic growth in the economies of our major trading partners —->increase in spending on our X
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45
Q

aggregate supply

A

represents the total volume of goods and services that all suppliers are willing and able to produce

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46
Q

production AS

A

the process of converting resources and inputs into goods and services

or

the total volume (or value) of goods and services produced over a given time period

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47
Q

productivity AS

A

measured by the output per unit input

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48
Q

productive capacity AS

A

the point at which production is occurring at the maximum level possible in an economy

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49
Q

factors that affect AS- inflation

A

short term- increased margins/profit—–> increased willingness and ability to produce/supply

long term-increase in inflation feeds through to wages so no overall effect on AS

50
Q

factors that affect AS -quantity

A

the quantity of the factors of production; labour, capital, and natural

51
Q

factors that affect AS- quality

A

the quality of the factors of production; labour, capital, and natural

52
Q

factors that affect AS

A

cost of production

technological changes

productivity growth

climatic conditions

53
Q

factors that affect AS exchange rates

A

depreciation of the AUD , increases cost of imports and an appreciation of the AUD, decreases cost of imports

54
Q

how is employment measured

A

unemployment rate (full employment)

55
Q

how is level of economic growth measured

A

GDP growth

56
Q

how is price levels measured

A

inflation rate

57
Q

gross

A

total

58
Q

economic growth

A

the rate at which economic activity grows over time

59
Q

domestic

A

made in Australia

60
Q

product

A

the value of good and services produced

61
Q

GDP

A

the final value of the goods and services produced within a country during a specific period of time

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

62
Q

Nominal GDP

A

measures the countries gross domestic product using current prices, without adjusting for inflation

63
Q

GDP per capita

A

GDP divided by the size of the population

GDP per capita= real GDP/population

64
Q

real GDP

A

measurement of economic output that accounts for the effects of inflation or deflation

65
Q

what does a rise in GDP indicate

A

when GDP increases there has been an increase in the final market value of goods and services produced over time.

may have occurred because of a rise in prices rather than a rise in the volume of goods and services produced

66
Q

material living standards

A

access to goods and services eg.) car, technology, house, health cover

67
Q

non- material living standards

A

aspects of persons quality of life that cannot be measured by monetary value

eg.) environment, freedom of speech, crime rates, literacy rates, time off work

68
Q

how economic growth impacts non material living standards

A

increased access to goods and services

*increased income to purchase

  • increased productions means more goods and services
69
Q

limitations of GDP

A

*ignores people quality of life. doesn’t measure stress levels and leisure

*doesn’t tell us how output is distributed- income inequality

*exclusion of non-market transactions- food grown in backyard

*doesn’t measure black market operations

*ignores negative externalities that lower non material living standards eg.) pollution, health

70
Q

how economic growth impacts non-material living standards

A

*people have jobs so they are less stressed about money

*lower rates of crime

*access to health care and education improves

*quality of goods and services increases

71
Q

alternative measures of national growth-

MAP (measure of Australia’s progress)

A

collection of measures published periodically by the Australian bureau of statics

focuses mainly on society, economy, governance and environment

72
Q

alternative measures of national growth-

GPI (genuine progress indicator)

A

uses GDP data as the base and makes pos or neg adjustments to values to better reflect the good or bad effects of some type of eco activity on M/NM LS

e.g)
*estimated value of unpaid community work
*making deductions for environmental destruction+ other externalities-loss of leisure time from work

73
Q

alternative measures of national growth-

HDI (human development index )

A

composite statistics of life expectancy, education, and per capita income indicators which are used to rank countries into four ties of human development

doesn’t incorporate environment

1=highest/0=lowest

74
Q

alternative measures of national growth-

GNH (gross national happiness)

A

composite index made up of several objectives and subjective indicators including;
* GDP per capita
* social support
* health and life expectancy
* freedom to make life’s choices
* Generosity
* Trust

75
Q

limitations of GDP-

excludes most non marketed production

A

g+s being produced but not included in the total volume of production
these are available for consumption by consumers improving their living standards- access to g+s and quality of life

e.g) cooking, cleaning, unpaid childcare, homegrown food

76
Q

limitations of GDP-

doesn’t take into account negative externalities

A

social cost imposed on the 3rd party will reduce their quality of life due to the reduction in the quality of surrounding environment and air quality. this could manifest itself into health issues

77
Q

limitations of GDP-

inaccurate guestestimation

A

true impact on access to G+S, and quality of life for consumers may not be indicated by the GDP figures issued by the ABS

78
Q

limitations of GDP-

failing to take into account how G+S and income are distributed

A

GDP per capita= per person measure

X reflect whether all consumers in economy receive the same amount of G+S/ workers receive same amount of income

t/f not good reflection of every households access to G+S or quality of life

79
Q

limitations of GDP-

not measuring change in quality of G+S from quatres

A

in the event that the quality of G+S deteriorate, e.g.) health services, —–> negatively impact consumers quality of life.

80
Q

HDI (human development index)

material living standards

A
  • GDP per capita
  • However, this figure is adjusted to remove variations in the actual purchasing power of money in different countries (called purchasing power parity or PPP), as well as adjusted downwards for inequality in the distribution of goods and services.
81
Q

HDI (human development index )

non material living standards

A
  • Life expectancy (calculated at birth and expressed in years)
  • Education standards (shown by adult literacy rates expressed as a percentage of those aged 15 years and over, and by the combined secondary and tertiary school enrolments).
82
Q

economic growth rate

A

3-3.5%

83
Q

inflation rate

A

2-3%

84
Q

monetary policy

A

RBA decisions to change interest rates

high interest rates discourage expenditure (consumption and Investment) and reward saving

Low interest rates promote expenditure (consumption and Investment) and discourage saving To stimulate economic growth

governments can lower interest rates at a cost of rising prices

85
Q

budgetary (fiscal) policy

A

government decisions on taxation and spending

Government can stimulate the economy by spending -› create jobs –> create incomes through wages -> shift AD right -> causes GDP to increase This comes at a cost of rising prices

aims to tackle inflation+employment

86
Q

expansionary

A

to expand

increases rate of economic growth when it is too low

87
Q

contractionary

A

to restrict

decrease rate of economic growth when it is excessive

88
Q

expansion monetary policy

A

*Decrease interest rates-> Increased economic growth (expands)

89
Q

contraction monetary policy

A
  • Increase interest rates-> Decreased economics growth (contracts)
90
Q

expansion budgetary (fiscal) policy

A
  • Deficit (expenditure>receipts) -> Increased economic growth (expands)

deals with unemployment

91
Q

contraction budgetary (fiscal) policy

A
  • Surplus (expenditure<receipts) -> Decreased economic growth (contracts)
  • Balance (expenditure=receipts)

deals with inflation

92
Q

Aggregate supply policies

A

Policies implemented by the government aimed at boosting the productive capacity of the economy

93
Q

Aggregate supply policies examples

A
  • Infrastructure investment
  • Trade liberalisation-> increased competitive pressure-> increased incentive to improve efficiency
  • Funding for training
  • Increased intake of skilled migrants
94
Q

economic prosperity

A
  • having high incomes per person and being able to consume or purchase more goods and services, now and into the future
  • It could also mean having a job and avoiding inflation, since these affect our purchasing power and incomes.

*strong economic growth is usually seen as the main way of improving economic prosperity.

95
Q

pros of economic prosperity

A
  • Creates employment = households’ high levels of income
  • Consumption increase
  • Production increase
  • Living standards and wellbeing increase
96
Q

cons of economic prosperity

A
  • Creates inflationary pressures = as moves closer to its productive capacity.
  • Purchasing power of consumers decreases
  • the nations international competitiveness decreases
  • decrease natural resources and environment = as carbon emissions and other forms of pollution increase
97
Q

issue of pursuing economic prosperity

A

A trade-off exists between economic prosperity and environmental sustainability

This is because using up natural and other resources (e.g., minerals, oil, water, oceans, climate and air) today to grow GDP and improve our immediate economic prosperity involves a longer-term opportunity cost or sacrifice.

98
Q

environmental cost of economic growth

A

Economic growth can accelerate environmental problems including:

  • climate change
  • the depletion of natural resources
  • the deterioration of common access goods (i.e., those things we all share and depend on, like air).
99
Q

Economic growth causes a depletion of natural
resource

A

In Australia’s case, economic growth has depended on the exploitation of natural resources.

However, some of our natural resources like minerals are non-renewable.

Once used up they cannot be replenished, depriving their use by future generations.

100
Q

The economic costs of economic growth-
Economic growth can add to structural unemployment.

A
  • Usually, economic growth causes a fall in cyclical unemployment (i.e., unemployment due to a lack of spending or AD)

*eco growth—>structural change
* When firms change their production methods or make change around cost cutting due to competitiveness-then jobs can and will be lost

101
Q

Sustainable economic growth

A
  • a method of expanding the economy’s production levels to meet the needs for goods and services of the present population without undermining the ability of future generations to meet their own needs
102
Q

long-term economic prosperity

A

all future generations are able to also enjoy high incomes and consumption levels).

103
Q

Economic growth causes a deterioration of
common access resources

A

Common access resources are those that we all share and depend on like the air, climate, rivers and oceans and ecosystems.

Without proper safeguards imposed by nations, these resources are often exploited for personal gain.

Abuse by individuals can deprive others of consumption.

104
Q

The economic costs of economic growth- Economic growth can accelerate inflation.

A

When economic growth is driven by strong rises in spending or AD, and the economy is close to its productive capacity, it is common to see a general rise in the prices paid for goods and services.

  • This is due to widespread shortages.
105
Q

Environmental sustainability

A
  • Involves the preservation of our natural environment into the future
  • By ensuring that current practices do not contribute to environmental harm and erosion of natural resources
106
Q

The economic costs of economic growth- Economic growth now may limit future economic growth.

A

Additional natural and other resources that are used to produce goods and services are limited

As a consequence, we may be reducing the capacity of future generations and an ever-growing population to enjoy economic prosperity.

107
Q

why do we need policies relating to the environmental impact of climate change

A

preserve the natural environment

achieve environmental sustainability

108
Q

policy approaches by government

A

direct action

regulation and legislation

market based approach

109
Q

Regulation and legislation involves:

A
  • The use of the Environmental Protection and Biodiversity Conservation Act (1999)
  • Laws to protect flora, fauna and the general environment
110
Q

how does regulation and legislation reduce environmental impact

A
  • It provides guidelines to assess the environmental impact of development
  • If it is found that there could be an impact, then applications for approval must be made
  • It must be proven that the benefits of the development outweigh the costs-> In response to this businesses are required to prepare an Environmental Impact Statement.
111
Q

indirect effect of environmental regulations

A

*technical innovation—->

*product innovation
*technological innovation

t/f promote economic growth

112
Q

direct effect of environmental regulations

A

*erode productive investment
*increase productive cost

t/f restrain economic growth

113
Q

examples of regulation and legislation

A

Mining
Construction near great barrier reef

114
Q

market based approaches involves:

A
  • Governments providing businesses and consumers with financial incentives to produce/purchase goods and service which take into account the environmental impact
  • Can involve subsidies /rebates to support environmental sustainability, or taxes/fines to penalise those actions that threaten environmental sustainability
115
Q

how does market based approach reduce environmental impact

A
  • Environmentally sustainable options get cheaper, while the unsustainable options get more expensive.
  • Uses price mechanism and relative prices to encourage consumers and businesses to choose options which have better environmental outcomes.
116
Q

examples of market based approach

A
  • Carbon tax & emissions trading scheme
  • Subsidised solar panels.
  • Subsidies for wind farms

*cap and trade system- allowing permits for specific quantity of pollution to occur over a particular period eg.) emisson trading scheme

117
Q

short term of ETC (emission trading scheme ) impacts on AS

A

*supply can be hard to change + takes time to develop +implement new technologies to deliver energy supply

*economy needs therefore an emission trading scheme.

*creating a carbon price tends to reduce the rate of economic growth in the short run due to increase in cost of production reducing AS and economic growth.

118
Q

long term imapct on economic prosperity and liviing standrds of ETC (emission trading scheme ) impacts on AS

A

mitigating the negative effects of climate change will protect natural resources and infrastructure by:

  • reducing the occurrence of extreme weather events that lead to destruction of vital infrastructure such as road, rail and ports
  • reducing the occurrence of droughts that negatively impact the availability of farming land from effects of climate change

Therefore, maintaining aggregate supply and ensure that Australia is able to maintain strong and sustainable economic growth in the long run.

119
Q

direct action involves:

A
  • Governments investing directly in projects to achieve specific environmental outcomes
120
Q

how does direct action reduce environmental impact

A
  • Provides funding to speed up the development of environmentally friendly projects and sustainable production methods
121
Q

examples of direct action

A
  • $2.55 billion Emissions Reductions Fund
  • $1 billion clean energy innovation fund
  • $70 million for 20 million trees by 2020
122
Q

Ultimate goal of ETC (emission trading scheme)

A

pricing carbon force firms and consumers to internalise the external costs stemming from burning fossil fuels for energy.

economics (7 decks)

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