week 7 Flashcards
factors influencing aggregate demand
disposable income
interest rates
consumer confidence
business confidence
exchange rate
rate of economic growth overseas
factors influencing aggregate demand
quantity of factors of production
quality of factors of production
costs of production
technical change
exchange rate
government regulations
climate conditions and supply shocks
define economic growth
economic growth refers to an increase in national production over time
describe the goal of the strong and sustainable growth
The government’s goal for strong and sustainable economic growth is to achieve the
highest growth rate possible, consistent with strong employment growth, but without
running into unacceptable inflationary, external or environmental pressures.
➔
A sustainable rate of economic growth is generally considered to be within the range of
3 - 3.5% per annum .
define GDP
GDP measures the final market value of all goods and services produced in Australia over a
given period.
define nominal GDP
Includes the total value of transactions at current prices , without
adjusting for inflation
define real GDP
Adjusts for inflation by using previous
period prices to measure actual growth in production volume .
why do seasonally adjusted GDP matter
Helps economists and media understand the underlying trends in economic activity.
●
Removes seasonal distortions , ensuring more accurate assessments of economic
growth.
●
Allows for better comparisons between quarters without misleading spikes or drops
how to calculate quartely growth
GDP current - GDP previous divided by GDP previous
calculate the annual growth of GDP
GDPquarterlygrowth x 4 = Annualised Growt
how is growth in real production a reason for pursuing strong economic growth
Economic growth leads to increased production , which in turn raises incomes for factors of
production (e.g., wages, interest, dividends ).
●
Material Living Standards: Higher incomes improve people’s ability to purchase goods
and services, enhancing their overall economic well-being.
●
Non-Material Living Standards: Economic growth also influences quality of life ,
contributing to factors such as:
Happiness and well-being
Freedom of expression and m
how is lowering unemployment a reason for perusing strong economic growth
Economic growth supports employment growth by increasing the derived demand for labor
Growth vs. Productivity: If economic growth exceeds productivity growth , more
jobs are created.
●
Labour Force Absorption: Strong economic and employment growth can reduce
unemployment if it keeps pace with labour force expansion (e.g., higher participation
rates).
how is increased provision of essential services a reason for perusing strong economic growth
Economic growth boosts government tax revenue through GST, income tax, payroll tax, and
stamp duties , enabling increased public spending on essential services such as:
Hospitals and healthcare
consequences of low economic growth
Labor Market Impacts:
○
Increased Unemployment: Businesses reduce hiring or lay off workers.
○
Wage Stagnation: Slow wage growth lowers purchasing power and living
standards.
○
Increased Inequality: Low growth worsens income inequality, with benefits not
evenly distributed.
2. Business and Financial Impacts:
○
Reduced Demand: Consumers spend less due to economic uncertainty.
○
Lower Investment: Businesses delay or cut investment, further slowing growth.
○
Financial Instability: Increased debt and economic strain on businesses and
individuals.
○
Increased Risk of Recession: Prolonged low growth raises the risk of sustained
economic decline.
3. Government and Social Impacts:
○
Increased Government Debt: Higher spending on social programs (e.g.,
unemployment benefits).
○
Reduced Tax Revenue: Lower economic activity leads to fiscal strain.
○
Social Unrest: Economic hardship can lead to instability and political unrest.
○
Strain on Public Services: Budget constraints may lead to cuts in education,
healthcare, and infrastructure.
consequences of high economic growth
Environmental Degradation:
○
Over Extraction of natural resources (e.g., deforestation, overfishing) may
exceed replenishment rates.
○
High pollution levels (e.g., carbon emissions) can contribute to climate change
and irreversible damage.
2. Balance of Payments Issues:
○
Growth beyond 4% can widen the current account deficit and increase net
foreign debt , burdening future generations.
3. High Inflation:
○
Overheating economy → rising demand → supply constraints → higher
prices .
○
Inflation above 3% is considered excessive in Australia, leading to economic
instability.
