Economics Exam Flashcards
(39 cards)
What is the business cycle?
The business cycle refers to the fluctuations in economic activity over time, measured by changes in GDP.
What are the phases of the business cycle?
- Expansion: Rising GDP, employment, consumer confidence, and investment.
- Contraction: Falling GDP, increasing unemployment, reduced spending.
- Boom: A peak period of rapid economic growth, low unemployment, and inflationary pressure.
- Recession: Two consecutive quarters of negative GDP growth.
- Depression: A prolonged, severe recession with high unemployment and low output.
What are leading indicators?
Leading indicators predict future economic activity (e.g., building approvals, stock market trends).
What are lagging indicators?
Lagging indicators confirm trends after changes occur (e.g., unemployment rate).
What are coincident indicators?
Coincident indicators move with the business cycle (e.g., GDP, retail sales).
What is economic growth?
Economic growth is an increase in the quantity of goods and services produced (GDP).
Why is economic growth important?
It improves living standards, employment, and government revenue.
What is the GDP formula?
AD = C + I + G + (X – M)
where C = Consumption, I = Investment, G = Government spending, X = Exports, M = Imports.
How is the economic growth rate calculated?
Growth Rate = ((GDP current - GDP previous) / GDP previous) × 100
What is the target economic growth rate in Australia?
The target rate is 3–4% annually.
What are the limitations of GDP as a measure of economic growth?
It doesn’t reflect income distribution, environmental impact, or unpaid work.
What defines a person as unemployed?
A person is unemployed if they are not working, are actively seeking work, are available to start work, and are part of the labour force.
What is the target unemployment rate in Australia?
The target rate is 4–5%.
How is the unemployment rate calculated?
Unemployment Rate = (Unemployed / Labour Force) × 100
What is the participation rate?
Participation Rate = (Labour Force / Working-age Population) × 100
What are the types of unemployment?
- Cyclical: Due to economic downturns.
- Structural: Mismatch between skills and jobs.
- Frictional: Between jobs.
- Seasonal: Due to seasonal work.
- Hardcore: Long-term or due to personal barriers.
- Underemployment: Working part-time or casual but wanting more hours.
What are the effects of unemployment?
Loss of income, social issues, reduced output.
What is inflation?
A sustained increase in the general price level.
What are the causes of inflation?
- Demand-Pull: Excess demand → higher prices.
- Cost-Push: Increased production costs → higher prices.
How is inflation measured?
Using the CPI (Consumer Price Index), which measures average price changes in a basket of goods.
What is the inflation rate formula?
Inflation Rate = ((CPI current - CPI previous) / CPI previous) × 100
What is the target inflation rate set by the RBA?
The target rate is 2–3%.
What is the difference between headline and underlying inflation?
Headline includes all items, while underlying removes volatile items (e.g., fuel).
What are the consequences of inflation?
Reduced purchasing power, uncertainty, wage demands.
