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Eco notes > Unit 3 AOS 2 > Flashcards

Unit 3 AOS 2 Flashcards

1
Q

What are material living standards?

A

Material living standards refer to the level of economic wellbeing of individuals and the quantity of physical goods and services available for each person to consume

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2
Q

What are non-material living standards?

A

Non-material living standards refer to the quality of a persons daily existence

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3
Q

What are the factors affecting material living standards?

A

Access to goods and services, environmental quality, physical and mental health, life expectancy, crime rates and literacy rates

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4
Q

What are the factors affecting non-material living standards?

A

Access to goods and services, environmental quality, physical and mental health, life expectancy, crime rates and literacy rates

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5
Q

What are the confilicting relationships between material and non-material living standards?

A

Environmental trade-off
Health and social trade-off
Material trade-off

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6
Q

What is Gross Domestic Product?

A

GDP is the final market value of all goods and services produced in the Australian economy over a given period of time
GDP = C + I + G +(X - M)

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7
Q

What is Gross National Expenditure?

A

GNE is the total expenditure on goods and services produced anywhere
GNE = C + I + G

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8
Q

What is the circular flow model?

A

Flow 1: Flow of productive natural, capital and labour resources supplied from the household to the business sector
Flow 2: Flow of incomes to owners selling resources from the business sector to the household sector
Flow 3: Flow of private consumption spending on final goods and services (C)
Flow 4: Flow of final goods and services supplied or produced

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9
Q

What are leakages?

A

Funds diverted away from consumption within the Aus economy e.g taxes, savings and imports

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10
Q

What are injections?

A

Flow of funds back into the Aus economy e.g investment spending, government spending and exports

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11
Q

What is aggregate demand?

A

AD is the total value of all expenditure on finished goods and services produced by a nation measured over a period of time
AD = C + I + (G1 + G2) + (X - M)

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12
Q

What is private consumption expenditure?

A

C represents the total value of all expenditure on individual and collective goods incurred by households

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13
Q

What is private investment expenditure?

A

I represents all expenditure with the purpose of expanding the productive capacity of firms (includes construction of new homes) and is the most volatile component

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14
Q

What is government spending?

A

G includes expenditure, current and capital, by all levels of government

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15
Q

What are exports and imports?

A

X is spending by foreign households, business, governments or other institutions on goods produced in Aus
M is spending by Aus households, businesses, government or other institutions produced overseas

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16
Q

What are the factors influencing AD?

A

Changes in general level of prices (inflation), disposable income, interest rates, consumer confidence, business confidence, exchange rates and level of economic growth overseas

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17
Q

What is aggregate supply?

A

AS represents the total volume of goods and services that all suppliers have produced and supplied over a period of time

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18
Q

What are the factors affecting AS?

A

Changes in general level of prices (inflation), the quantity of factors of production, the quality of the factors of production, technological change, productivity growth, exchange rates, climatic conditions and government regulations and supply chain disruptions

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19
Q

What is the business cycle?

A

The business cycle is the cyclical movement of economic activity over time

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20
Q

What is the nature of a peak?

A

A peak involves high levels of economic growth, high levels of inflation, low levels of unemployment and high levels of spending and confidence

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21
Q

What is the nature of a contraction?

A

A contraction involves slowing rates of economic growth, lower levels of inflation (disinflation), increasing levels of unemployment and underutilisation and decreasing levels of confidence and spending

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22
Q

What is the nature of a trough?

A

A trough involves low levels of economic growth, low level of inflation, high levels of underutilisation, increase in leakages and a low level of confidence and spending

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23
Q

What is the nature of an expansion?

A

An expansion involves increasing levels of economic growth, decreased unemployment, inflationary pressures building within the economy and increasing levels of confidence and spending

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24
Q

What is strong and sustainable economic growth?

A

Strong and sustainable growth is where real GDP is between 3 - 3.5%, employment growth is strong but without inflationary, environmental or external pressures

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25
Q

What is sustainable growth?

A

Sustainable growth is growth or economic development that meets the needs of the present without compromising the ability of future generations to meet their own needs

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26
Q

What is GDP?

A

The total market value of all goods and services produced in the Aus economy over a given period of time

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27
Q

What is Nominal GDP?

A

The dollar value of the goods and services produced in a time period, which depends on the volume of what was produced and the price of what was produced

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28
Q

What is Real GDP?

A

The total volume that was produced

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29
Q

What is Real GDP per capita?

A

The measure of material living standards

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30
Q

What are the three measures that the ABS uses to measure macro economic activity?

A

The income approach - based on estimates of all income earned in the economy
The expenditure approach - based on estimates of total expenditure on Aus goods and services
The production approach - based on estimates of total goods and services produced in Aus

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31
Q

How to measure the rate of economic growth using Real GDP?

A

(GDP period 2 - GDP period 1 / GDP period 1 ) * 100

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32
Q

What are the reasons to pursue economic growth?

A

Growth in real income, lowering in the unemployment rate (derived demand for labour) and increased ability of the gov to provide essential services and avoid rising levels of debt

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33
Q

What factors need to be considered when achieving optimal growth rate?

A

Jobless growth - higher ouput is achieved via a greater productivity of existing inputs so gov needs to ensure that the growth rate exceeds rate of growth in productivity
Greater than population growth - economic growth needs to exceed population growth rate, best measured by Real GDP per capita

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34
Q

What are the consequences of not achieving the goal?

A

Lack in growth in real income, increase in the unemployment rate and a reduction in the ability of the government to provide essential services and avoid rising levels of debt

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35
Q

What are the factors that impact aggregate demand?

A

Inflation, interest rates, disposable income, consumer confidence, business confidence, exchange rates and levels of economic growth overseas

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36
Q

What are the factors that impact aggregate supply?

A

Inflation, the quantity of factors of production, the quality of factors of production, cost of production, technological change, productivity growth, exchange rates and climatic conditions

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37
Q

What does it mean to be employed?

A

Being employed means someone is 15 years old or above and is working atleast 1 hour or more per week for some form of remuneration

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38
Q

What does it mean to be unemployed?

A

Being unemployed means someone is 15 years old or above without working for atleast one hour a week and is actively looking for work

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39
Q

What is hidden unemployment?

A

Hidden unemployment is unemployed people who are not included in the calculation of unemployment because they have given up on looking for work

40
Q

What is under unemployment?

A

Under employment is individuals who have a job but they would prefer to be working more hours

41
Q

What is long term unemployment?

A

When a person is unemployed for more than 12 months

42
Q

What is the goal of full employment?

A

The level of unemployment that exists when the gov’s economic growth goal is achieved and where cyclical unemployment is non-existent, generally accepted to be 4 - 4.5% NAIRU(Non Accelerating Inflationary Rate of Unemployment)

43
Q

Equation for the unemployment rate

A

Unemployment rate = Unemployed / labour force * 100

44
Q

Equation for the labour force

A

Labour force = Employed + unemployed

45
Q

Equation for labour force underutilisation rate

A

Underutilisation rate = (Unemployed + underemployed) / labour force * 100

46
Q

Equation for labour force participation rate

A

Participation rate = labour force / working-age population * 100

47
Q

What is the goal of low inflation?

A

The goal of low inflation is to achieve a sustained increase in the general level of prices of between 2 - 3% on average over the medium term

48
Q

What is inflation?

A

Inflation is a sustained increase in the general or average level of prices over time

49
Q

What is disinflation?

A

Disinflation is a reduction in the rate of inflation compared to the previous term where it still results in positive growth

50
Q

What is deflation?

A

Deflation is a decrease in the average price level over a time

51
Q

What is the Consumer Price Index?

A

CPI is the most reliable indicator of inflation and it determines the change in the prices of goods and services purchased by Aus households

52
Q

Equation for the inflation rate

A

Inflation rate = (Price index (end) - price index (beginning)) / price index (beginning) * 100

53
Q

How to determine the annualised inflation rate?

A

Multiply the quarterly inflation rate by 4

54
Q

What is CPI headline/headline inflation?

A

A capture of price movements of all goods and services contained in CPI

55
Q

What is CPI underlying/underlying inflation?

A

A capture of price movements which excludes volatile items contained with CPI

56
Q

What is the RBA underlying trimmer mean?

A

It is the removal of the top and bottom 15% from the CPI

57
Q

What is the RBA underlying weighted mean?

A

It is the price change that sits in the middle range of the CPI

58
Q

What is demand inflation?

A

Demand inflation is inflation caused by factors that increase or decrease AD

59
Q

What is cost inflation?

A

Cost inflation is inflation caused by factors that impact AS or supply side pressures or capacity constraints

60
Q

What is structural unemployment?

A

Structural unemployment is where the skills of the unemployed do not match the skills required by the economy

61
Q

What is seasonal unemployment?

A

Seasonal unemployment is where a person is unemployed because their skills are only demanded during certain times of the year

62
Q

What is frictional unemployment?

A

Frictional unemployment is where a person is unemployed for the period of time while they are moving from one job to another

63
Q

What is hardcore unemployment?

A

Hardcore unemployment is where a person is unemployed due to mental, physical or other characteristics that prevent them from recieving a job offer

64
Q

What is cyclical unemployment?

A

Cyclical unemployment is unemployment that occurs when the economy is not operating at its full capacity due to AD deficiencies

65
Q

What are the consequences of unemployment?

A

Loss of GDP, loss of tax revenue, greater income inequality and a reduction in living standards

66
Q

What are the consequences of high inflation?

A

Erosion of purchasing power, resource misallocation (false price signals), reduction in international competitiveness, redistributive effects and distortion in savings and investement

67
Q

What are the consequences if inflation is too low?

A

Consumers delay purchasing as they expect prices to fall, reducing private consumption expenditure and business confidence declines leading to reduced private investment expenditure and an increase in unemployment

68
Q

What is the Balance of Payments?

A

The balance of payments is a record of the financial transactions between residents of Australia and residents of the rest of the world

69
Q

What are credits?

A

Credits are money recieved by Australian residents and these are shown as positives in the account

70
Q

What are debits?

A

Debits are money paid overseas by Australian residents and these are shown as negatives in the account

71
Q

What is the Current Account?

A

The current account records all receipts and payments of a ‘current’ nature/transactions that do not create any future obligations

72
Q

What is the Capital and Financial Account?

A

The CAFA records all reciepts and payments of a capital nature/transactions that do create future obligations

73
Q

What is the Balance of Merchandise Trade?

A

The BoMT is the value of export credits or merchandise sold overseas minus the value of import debits for goods purchased from overseas

74
Q

What is Net Services?

A

Net services is the value of service credits recieved from overseas minus the value of service debits paid abroad

75
Q

What is Net Primary Incomes?

A

Net primary incomes is the difference in value between income credits recieved from overseas minus the income debits paid abroad

76
Q

What is Net Secondary Incomes?

A

Net secondary incomes is the differnece between the value of secondary income credits recieved by Aus residents minus the value of secondary income debits paid overseas

77
Q

What is the Current Account Deficit?

A

CAD is when the total payments/debits in the Current Account of the Balance of Payments exceed total reciepts/credits

78
Q

What is the Capital Account?

A

The capital account is capital transactions that include net capital transfers and the net acquisition of non-produced, non-financial assets and it is broken into capital transfers and net acquisitions/disposal of non-produced, non-financial assets

79
Q

What is the Financial Account?

A

The financial account records the value of total credits for investments and borrowings recieved by Australian’s from abroad minus the total debits for investments and lending by Australians abroad, and it shows how Aus pays for its CAD

80
Q

What is Net Direct Investment?

A

Defined as 10% or above of ownership of shares, net direct investment involves the purchase, setting up or expansion of companies and assets in Aus by foreigners classified as credits minus similar investemnts overseas by Australian residents classified as debits

81
Q

What is Net Portfolio Investment?

A

Transactions involving less than 10% investment in a company, net portfolio investment is the difference in the value of transactions by foreign individuals purchasing Aus shares, debt and securities minus the value of similiar assets purchased by Aus residents

82
Q

What are Financial Derivatives?

A

Financial derivatives are complex financial instruments that create assets or liabilities

83
Q

What are Other Investments?

A

Other investments include credits minus debits for loans and deposits

84
Q

What are Net Reserve Assets?

A

Net reserve assets contain both RBA and government transactions involving dealings in reserves of foreign currencies, gold, special drawing rights and required contributions to the International Monetary Fund

85
Q

What are the structural components of the CAD?

A

The structural components of the CAD are the savings and investment imbalance and low levels of international competitiveness due to low levels of efficiency and high production costs

86
Q

What is the cyclical component of the CAD?

A

The cyclical component of the CAD is tied to changes in the economic cycle or levels of economic activity in the Aus economy

87
Q

What are the cyclical components that impact the CAD?

A

Levels of disposable income, interest rates, consumer and business confidence, exchange rates and rates of overseas economic growth

88
Q

What is Net International Investment Position?

A

NIIP describes the extent to which Australia is financially obligated to the rest of the world and it is made up of the Australia’s Net Forrign Liabilities

89
Q

What is Net Foreign Debt?

A

NFD is calculated by looking at the net debt obligations that flow from our total borrowing from overseas and subtracting our total lending to overseas

90
Q

What is public or government debt?

A

Public or government debt is borrowings to finance budget deficits

91
Q

What is private debt?

A

Borrowings from the household and investment sector

92
Q

What is Net Foreign Equity?

A

NFE is equal to the net equity obligation that results from foreign ownership of Australian assets minus the Australian ownership of foreign assets

​

93
Q

What is Terms of Trade?

A

Terms of Trade is a ratio of the average prices received for Australian exports relative to the average prices paid for our imports

94
Q

What is the Terms of Trade equation?

A

TOT = Export price index / Import price index x 100

95
Q

What are the factors affecting exchange rates?

A

Relative interest rates, capital flows, oversease rates of growth, growth in national spending, Terms of Trade and relative rates of inflation

96
Q

What is international competitiveness?

A

International competitiveness measures a country’s ability to compete in global markets for goods and services

97
Q

What factors may influence Australia’s international competitivenss?

A

These factors include levels of productivity, production costs, availability of natural resources, exchange rates, relative interest rates and relative inflation rates

Eco notes (4 decks)

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