Unit 3 AOS2

Question 1

What is the business cycle

Answer 1

Is fluctuations in economic activity overtime.

Question 2

Material Living Standards

Answer 2

Involves the level of economic wellbeing of individuals and the quantity of tangible or physical goods and services available for each person to consume.

Question 3

Non-Material Living Standards

Answer 3

refers to the quality aspects of a persons daily existence. These factors include environmental quality, physical and mental health, life expectancy, crime rates and literacy rates.

Question 4

GDP per capita

Answer 4

all goods and services produced in a country, given a dollar value, then distributed among all people in the country.

Question 5

Real GDP

Answer 5

Final market value of all goods and services produced in Australia over a given period of time time, adjusted for inflation.

Question 6

what is Aggregate Demand (AD=C+I+G+(X-M))

Answer 6

Refers to the total annual value of spending by households, governments and net overseas transactions on Australian- made goods and services.

Question 7

Aggregate Supply

Answer 7

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

Question 8

Inflation

Answer 8

The sustained increase in general or average price level over time.

Question 9

Goal of Price Stability (low inflation)

Answer 9

the goal of low inflation is achieved when general consumer prices for goods and services are increasing fairly slowly. The target range for this is at a rate of 2-3% a year.

Question 10

Goal of economic growth

Answer 10

the goal of strong and sustainable economic growth can be defined as the fastest possible rate of growth without having an effect on resources or the environment for future generations.

Question 11

Chain Volume Measure

Answer 11

Used by the Australian Bureau of Statistics to estimate real GDP using prices from previous period and applying to current period.

Question 12

Why pursue strong and sustainable economic growth

Answer 12

1. generally increase material living standards and incomes
2. Creates employment
3. Improve governments ability to provide essential services.

Question 13

Full Employment

Answer 13

the level of employment that exists when the governments economic growth objective is achieved and where there is no cyclical unemployment.

Question 14

Goal of Full employment

Answer 14

when unemployment can be reduced by the economy at a sustainable rate without running into inflationary pressures.

Question 15

Underemployment (disguised)

Answer 15

where people are employed but would like more hours.

Question 16

Hidden Unemployment

Answer 16

People who would like to work by have become discouraged from seeking employment and are no longer actively seeking work.

Question 17

Labour Force

Answer 17

All those people over the age of 15 who are willing and able to work.

Question 18

Cyclical Unemployment

Answer 18

Is cased by an insufficient level of aggregate demand

Question 19

Structural Unemployment

Answer 19

Caused by a mismatch between the skillset of the unemployment and the skills required in the economy. Includes outsourcing, restructuring, changing tastes and preferences, new technology.

Question 20

Seasonal Unemployment

Answer 20

Those workers whose skills are not in demand at certain times of the year.

Question 21

Frictional Unemployment

Answer 21

Unemployment that occurs when workers are moving between one job and another.

Question 22

Hard-Core unemployment

Answer 22

Caused by individual characteristics of the unemployed person.

Question 23

Factors affecting living standards

Answer 23

• access to goods and services
• environment quality
• Physical and mental health
• Life expectancy
• crime rates
• literacy rates

Question 24

Leakages of circular flow model

Answer 24

• Savings
• Taxes
• Imports

Question 25

Injections of the circular flow model

Answer 25

• Investment
• Government
• Exports

Question 26

Factors that affect the level of AD

Answer 26

• Disposable Income
• Consumer Confidence
• Business Confidence
• The exchange rate
• Interest Rates
• change in general price level
• Rates of overseas economic growth

Question 27

Factors affecting aggregate supply

Answer 27

• Quantity of Factors of Production
• Quality of factors of production
• cost of production
• Technological change
• Productivity growth
• Exchange rates
• Climatic conditions

Question 28

Demand inflation

Answer 28

Demand Inflation: This is caused by factors causing an increase in AD

Question 29

Cost Inflation

Answer 29

Cost Inflation: Caused by factors that cause cost of production to increase or place pressure on AS.

Question 30

Headline Inflation

Answer 30

The rate of inflation as captured by price movements of all goods and services contained by the Consumer Price Index.

Question 31

Underlying (core) inflation

Answer 31

The rate of inflation that provides the best indicator of the predominant price pressures existing in the economy. Commonly measured by the RBA’s trimmed mean and weighted median measures.

Question 32

Impacts of high inflation

Answer 32

• Diminishes purchasing power
• workers may push for higher wages to counter the loss of purchasing power. This increase business costs.
• prompts high interest rate which cause higher cost of borrowing
• People devote more of there income to current spending and have less savings which may reduce investment.

Question 33

Causes of cost inflation

Answer 33

• fewer factors of production
• lower quality of resources
• higher cost of production
• Decreased technology change
• lower productivity
• lower exchange rates
• deteriorating climate conditions

Question 34

Causes of demand inflation

Answer 34

Causes:

• higher disposable incomes
• Stronger Consumer and Business confidence
• Lower exchange rates (more demand for exports)
• Strong overseas growth

Question 35

Consumer Price Index

Answer 35

The index measures the changes in price of a ‘basket’ (about 100,000) of goods and services purchased by the average Australian household on a quarterly basis.