week 5 Flashcards
define economic activity
Any activity of individuals, firms or governments which generates production, income,
employment and expenditure
define GDP
defined as the final market value of all
goods and services produced in the (Australian) economy over a given
period of time.
define material living standards
Material living standards primarily relate to the ability of individuals to access goods and
services
define non material living standards
Wider range of the factors other than purchasing power that affect a person’s wellbeing - their
overall ‘quality of life’
factors affecting living standards
access to good and services
environmental quality
environmental quality and living standards
physical and mental health
life expectancy
crime rates
literary rates
how do literary rates impact impact living standards
Adult literacy rate measures the percentage of people (15+) who can read and write.
Impact on material living standards:
non material - Reading and intellectual discussions contribute to personal growth and
self-actualization.
Increases participation in the workforce, leading to social interaction and a sense
of purpose.
material living standards - more people have job prospects increasing production increasing access
how does environmental quality impact living standards
Material living standards: Poor environmental quality reduces income and productivity by harming health and damaging resources.
Non-material living standards: Environmental degradation lowers quality of life by reducing access to clean air, nature, and overall well-being.
define the circular flow model of income
The Circular Flow Model of Income
Illustrates the movement of money, resources, and goods/services in an economy.
describe each flow
FLOW 1: The factors of production flow from households to businesses
(Members of the households (i.e. the Household Sector in the model) provide natural
resources, labour and capital to businesses)
FLOW 2: The businesses pay income to those who provide the factors of production
(From the provision of labour → households may receive wages, salaries)
FLOW 3: Demand for goods and services
(income is first diverted through
➔
Financial
➔
Government
➔
External sectors)
FLOW 4: Production of goods and services (real GDP)
what are the leakages
saving, taxes and imports
what are the injections
investment, government, exports
describe G1
Refers to government expenditure on goods and services that are not
capital in nature
➔
Relatively stable component of AD
➔
Does NOT include welfare outlays (spent by consumers not
govt.)
➔
17% of FOR EXAMPLE government staff wages
describe G2
Government expenditure on goods that are of a capital nature
➔
Used to meet society’s needs and wants; expand Australia’s
productive capacity (NBN)
for example infrastructure spending
what are features of a peak in the business cycle
- high consumer and business confidence
-increased demand
-rise in eco activity
-leakages falling relative to injections
-inflationary pressures
-labour market tightens
-interest rates increase
features of a contraction or down turn in the business cycle
- high inflation, higher interest rates
-households start to increase saving
-increase injection
-slower economic growth
Economic growth slows, resources become unemployed, and confidence deteriorates.
➔
Inflation falls back to more sustainable levels, reducing excessive credit and
consumption growth.
features of a trough
Lowest point of economic activity.
High unemployment (due to low production and business closures).
Very low consumer and business confidence.
Low levels of spending (consumption) and investment.
Interest rates may be very low (to encourage borrowing and spending).
Low inflation or even deflation (prices can fall).
Government stimulus often increases (e.g., spending programs, tax cuts).
Excess capacity in businesses (unused labour and resources).
Business bankruptcies and loan defaults may be higher.
features of a recovery
Economic activity begins to increase.
Unemployment starts to fall (businesses hire again as demand rises).
Consumer and business confidence improves.
Spending (consumption) and investment grow.
Production levels rise to meet higher demand.
Wages may slowly begin to rise.
Inflation remains low to moderate (but starts to pick up).
Interest rates may stay low at first to support the recovery.
Government support may begin to wind back as the economy strengthens.
