UNIT 3 AOS 2 (T) - part 1

Question 1

Define Aggregate demand

and equation

Answer 1

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

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

Question 2

Aggregate Supply def

Answer 2

Aggregate supply is the total volume of good and services available for sale in an economy in a given period.

Question 3

economic activity def

Answer 3

any activity of individuals, firms, or governments that generate production, income, employment and expenditure

Question 4

Circular flow model - Name the 4 flows + def + (L+I)

Answer 4

detailed map of interrelationships between economic agents- how they impact economic activity

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

Leakges:
- savings
- Taxes
- Import spending

Injections
- Investment spending
- Government spending
- Export spending

Question 5

domino for an aging population (up to AS)

Answer 5

= more people retired
= par%%% decrease
= labour resource become scarse (tighter labour market)
=↑ price of labour

= ↑COP
= ↓ profitbiility
= ↓ willingness to produce g/s (shift suply left)
= ↓ aggreagte supply

Question 6

Living standards def

MLS and NMLS

Answer 6

the aggregate welfare of people made up of both material and non-material living standards

MLS
* Material living standard is measured one’s access to goods and services
* tangible factors
* measured by GDP per capita and income per capita

NMLS
* Non material living standards is one’s quality of life
* Non-tangible factors
* cannot be measured by monetary factors

Question 7

define: business cycle

AND CHACTERSTICS OF EACH PART

Answer 7

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

Characteristics of boom/peek
- Low unemployment rate
- High inflation rate
- High rate economic growth

Characteristics of contraction (downturn)
- rising unemployment rate
- slower rate economic growth
- slow rates of inflation

Characteristics of trough
- Low inflation rate
- High unemployment rate
- Low rate economy growth

Characteristics of expansion
- falling unemployment
- rising inflation rates
- rising growth rates

models “cyclical movement of econoimc activity!”

Question 8

Economic growth- the def

Answer 8

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.

Question 9

Domino for $$aust ↓↓↓↓ (depreciating)

exchange rate

Answer 9

↓$$aud
(Aust g/s appear relatively less expensive than TPs = TP incentived to trade w/ Aust)
= ↑ EXPORTS (as appear cheaper)
= ↑ INT comp
= ↑ net exports (inc inter buyers)
= ↑aggregate demand

= ↑economic activity
= ↑ demand inflation (goal 1) d>s
= ↑production (goal 2)
(= ↑ real GDP)
= ↑ economic growth

= ↑ derived demand for labour
= ↓ unemployment (goal 3)

Question 10

human development index

AND DIFF

Answer 10

• an alternative measure to GDP
• ranks countries based on: Ranks GDP + life expct +education system + social walfare

Diff:
* More objective view on MLS and welfare standards

and diff with real GDP

Question 11

Recent example where AD has inflationary pressures

Answer 11

↑population growth(600k net migration in past 12 months)
↑C
↑AD
↑EA
D>S
↑ demand inflationary pressures
(production)
↑ ECO growth

↑ DDL
↓ UNN

↓Consumer confidence (consumer sentiment: how optimistic a consumer is about the economy and their job security - decreased by 3.9% in the past 12 months)
↓C
↓AD
↓EA
S>D
↓demand inflationary pressures
↓production
↓ eco growth

↓DDL
↑UNN

CC: how optimistic a consumer is for the future of their finaical situation and job security

Question 12

Recent example where AS has inflationary pressures

Answer 12

↑energy prices in Australia
↑COP
↓Profitability
↓ willingness to produce g/s

↓AS
↓EA
↑cost inflation

↓production of g/s
↓ eco growth (2)

↓DDL
↑UNN (3)

Question 13

Appreciation of $$AUD effect on AD + AS

on AD and AS

Answer 13

ADD AT THE START:

=> Aust g/s appear more expensive relative to other trading partners g/s (assuming TP isn’t going under high levels of inflation

= trading partner incentived to trade with other trading partner

= loss of IC

[AD]
(Aust g/s appear more expensive)
↓IIC
↓X (as trading partner g/s appear cheaper - ↑ M)
↓AD
↓production
↓EG

[AS]
dec cost of M relatively cheaper
(need import components in most Aust g/s)
↓COP
↑AS
↑EG