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economics > economics pg 24 > Flashcards

economics pg 24 Flashcards

(52 cards)

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1
Q

why are savings and investment essential in cfoi?

A

-savings essential if investment occurs –> allow creation of new capital goods

-forgoing current consumption of g&s, invest in capital goods & improve future productive capacity of eco –> ^ stock of productive resources & allows to produce greater volume of g&s in future

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2
Q

investment into cfoi

A

current expenditure made to obtain benefits in future

represents injection into cfoi, OPP effect of LEAKAGE (^ size of cfoi –> ^ lvl of eco activity

eg. business invests by purchasing capital goods to gain profits in future from OUTPUT machine produces.

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3
Q

chain when firms undertake investment expenditure

A

spending on investment leads to RISING:
Expenditure
Production
Employment
Income levels

increase demand for capital goods –> stimulates production in firms that produce them –> demand more resources –> mroe resources employed, ind incomes ^ –> stimulate increase in demand for g&s –> more resources employed, higher income sgenerated

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4
Q

what makes the private sector?

A

individuals
businesses
financial institutions

IBF

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5
Q

GVTs in cfoi

A

satisfy collective wants (roads, schools, hospitals, defence) by imposing taxes on other sectors of eco

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6
Q

what are the 2 major roles gvt plays in cfoi

A
  1. imposes taxes on ind & bus
  2. uses tax revenue to undertake GVT expenditures
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7
Q

how does tax relate to the cfoi? falling IOE

A

LEAKAGE, causes reduction in lvl of eco activity (falling income, output & employment opp)

ind pay income tax –> reduce amt money spent on g&s

GVT takes bus –> reduces funds available to pay for resources

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8
Q

what are the 2 reasons GVT expenditure represent INJECTION into cfoi?
IOE

A
  1. gvt spends revenue on collective g&s, provides income to gvt employees & those of private bus (purchase g&s0
  2. gvt uses part of tax revenue to make TRANSFER PAYMENTS (pensions, unemployment benefits) income to recipients.

hence rising income, output & employment opportunities (opp of tax)

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9
Q

whgat is the public sector

A

government

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10
Q

what does public + private sector =?

A

domestic sector or eco

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11
Q

what does international trade represent in cfoi/

A

INJECTION (outward money flow, exports are leakage)

EXPORTS (g&s produce in aus & sold overseas)

IMPORTS (g&s produced overseas & sold in AUS)

INTERNATIONAL MONEY FLOWS (financial transactions eg. borrowing, lending and income payments betw AUS and other countries)

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12
Q

what are imports in cfoi regarded as?

also includes lending, paying income overseas (outward money flow)

A

LEAKAGE

money withdrawn from AUS eco & paid to businesses overseas

hence falling IOE

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13
Q

what are exports in cfoi regarded as?

also includes inflow of money from overseas (foreigners lending/paying income t oAUS)

A

INJECTION

money paid t oAUS bus by foreign consumers.
stimulates production & employment opp in AUS

RISING IOE

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14
Q

equilibrium in cfoi

A

sum of all leakages = sum of all injections

S+T+M = I+G+X

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15
Q

what happens when there’s a disequilibrium (total leakages > total injections) in cfoi?

A
  1. DOWNTURN in eco activity
    -falling IO(prod)E
    -as lvl eco activity falls, total leakages from eco fall as consumers have less income to save/spend on imports/collected as tax

hence, leakages & injections eventually equal, eco restored to equilibrium at LOWER level of INCOME

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16
Q

what happens when disequilibrium (total INJECTIONS > total LEAKAGES) IN CFOI?

A

UPTURN in lvl of eco activity (rising IOE)
-as lvl eco activity ^, total leakages from eco ^ (consumers more income t osave, spend on imports, collected as taxes)

leakages & injections eventually equilibrium at HIGHER lvl of income

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17
Q

why does the gvt have a significant influence on the cfoi? (3)

A

-change lvls of tax & gvt revenue –> manipulate size of total L&I and overall lvl eco activity.

possiblely offset undesirable outcome from inequality of savings & investment/international trade & financial flows

stimulate eco by ^injections/^leakages

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18
Q

goods & services

A

tangible items for consumption

intangible acts that benefit consumers

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19
Q

bartering in market ecos

A

non-cash exchange where g/s directly traded for another g/s

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20
Q

pure market economy/capitalist/free enterprise/laeissez-faire(let things be)

A

all major decisions made by individuals & private firms motivated by self-interest

most eco resources owned by private sector

ppl can seek wealth without gvt intervention/bus activities

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21
Q

centrally planned eco

Study These Flashcards
A

gvt makes eco decision

individuals choices play small role in influencing eco outcomes

public ownership of FOP allows gvt to entirely allocate resources

22
Q

main weakness of (pure)market economy

Study These Flashcards
A

those who owned & controlled means of production become extremely wealthy while majority exploited and few opp to escape poverty

vulnerable to cyclical boom & bust

23
Q

characteristics of a market economy MsPoCsFeC

Study These Flashcards
A

Market system

Private ownership of property

Consumer sovereignty

Freedom of enterprise

Competition

24
Q

product market

Study These Flashcards
A

interaction of demand for & supply of OUTPUTS of production (g&s)

25
market
network of buyers & sellers to exchange particular product at certain price
26
free market eco
markets for all g&s products and resources that produce them
27
structure of product markets (price mechanism: price which g&s bought and sold)
BUYERS are consumers (constitute demand for products) SELLERS are businesses (output decision make up supply of products) -price IMP bc affects lvl consumer demand & supply by bus
28
price mechanism
process which forces of supply & demand interact to determine the MARKET PRICE at which g&s sold + QUANTIY produced consumers want LOWEST possible price to satisfy more wants FIRMS want sell at HIGHEST possible price to make as much profit possible
29
factor market
market for any input into production process (FOD, LLCE)
30
changes in demand & supply in product market also influences supply & demand in _________ market
factor if demand for sunglasses^, producers need extra FOD to increase SUPPLY (plastic, skilled labour) -to attract resources away from other FOD, manufacturer offers HIGHER PRICES (rg. higher wages) hence **influences resource allocation**
31
private ownership of property in market eco
ppl right to own means of production/resources & can use to derive income & acquire wealth also have right to sell property/transfer ownership to other under conditions they choose
32
consumer sovereignty in market eco
consumers free to choose how they spend income to satisfy wants -ultimately decide what g&s produced -bus produce g&s demanded
33
consumer sovereignty
manner which consumers through market demand collectively determine what's produced & QUALITY of production
34
freedom of enterprise in market eco
individuals right to use resources as they choose -entrepreneurs free to set up profit-making activities & right to determine what g&s to produce & the PP -workers fre to choose occupations/whether to work
35
competition
pressure on business firms in market eco to lower prices/improve quality of output to increase sales of g&s to consumers
36
competition in market eco
allows **price mechanism to work effectively** -large no. buyers & sellers -**no single buyer/seller** big enough on own to influence market price (greater bargaining power) over others
37
high competition in pure market eco
large no. producers compete in every industry
38
less competition in pure market eco
few large bus charge higher prices to make excessive profits at expense of consumer
39
mixed eco
eco system where decisions concerning **production & distribution** made by combination of **MARKET FORCES and GVT DECISIONS** no eco purely market based/totally planned
40
mixed eco trend over time
globalisation 1980s away from gvt intervention to relying on market forces but gvt play more interventionist role since GFC late 2000s & covid 19 pandemic
41
why does gvt intervene in resource allocation? + 3 considerations
free market doesnt always provide most **EFFICIENT ALLOCATION OF RESOURCES** for eco as whole 1. some **necessities** may **not be provided** under **pure market** system -g&smay be **partially produced by private sector** but require **gvt to supplement supply** to **satisfy desirable social outcomes (public healthcare & edu)** 2. sometimes better for **essential g&s** to be provided by gvts **than being left to private** individuals -safer to have defence force for gvt than system of private armies 3. **markets dont always operate freely,** competitively/**best interest** of eco as whole -gvt provides **REGULATION** enforced by **ACCC** to **prevent producers** from **exploiting consumers** with misleading info -gvts legislate to ban production of **undesirable goods** (illicit drugs) to ensure adequate **safety standards** for all products **sold** on market
42
ACCC
australian competition and consumer commission
43
why does the gvt intervene in DISTRIBUTION OF OUTPUT(income)?
free market wont necessarily provide fair distribution
44
how does the gvt redistribute income? 2 ways
1. SWP -under price mechanism alone, no income earned for elderly, unemployed, chronically sick -AUS taxes ppl on higher incomes more heavily (disability pensions, unemployment benefits, age pensions) 2. PROGRESSIVE INCOME TAX -overall redistribution of income for more EQUITABLE sharing of produced output -high income earners taxed at higher MARGINAL rates & pay PROPORTIONATELY more tax than low income earners
45
how does gvt intervene in business cycle for economic stability?
implement macroeconomic (countercyclical) policies to smooth effects of cycle & reduce problems of insufficient/excessive eco activity
46
RIE 3 reasons why gvts intervene in market eco (summary)
1. RESOURCE ALLOCATION -provide important g&s not provided by private sector -restrict production of harmful goods 2. INCOME DISTRIBUTION -create fairer society & look after disadvantaged 3. ECONOMIC STABILITY -smooth sharp fluctuations in eco cycle -ensure stability in eco & financial system
47
Australia's market economy is balanced by 2 things:
1. MARKET FORCES (FePpCCs) -free enterprise -private property -competition -consumer sovereignty 2. GVT INTERVENTION (PoRSP) -**public ownership -regulation -social welfare payments -progressive taxation**
48
how does gvt in mixed eco aim to solve WHAT to produce?
PRODUCER -provide **collective g&s** (schools, defence) -compete directly with private enterprise -encourage forms of production through **subsidies, tax incentives/start-up funding** -**limit/prohibit production of undesirable goods**
49
how does gvt in mixed eco aim to solve how MUCH to produce?
limit production of goods/delivery of some services **encourage greater provision** of underprovided g&s **(merit goods)** encourage AUS producers **competing with foreigners** to **^output** by imposing **PROTECTIONIST TRADE POLICIES ** -import restrictions -**taxes on g&s entering AUS** -grant** subsidies (cash payments/lower taxes)** to AUS producers
50
merit goods
g&s not produced in sufficient quantity by private sector bc inividuals dont place sufficient value on them
51
how do gvts in mixed eco aim to solve HOW to produce?
infuence** COST of FOP & how they're used in PP** -**industrial relation laws** provide framework for **MIN WAGE lvls** & working conditions in **diff industries** --> influencing **labour costs** -**laws regulate behaviour of firms** (safety rules, environmental controls & prohibition of child labour) --> **firms wont always able choose cheapest method** of production
52
how do gvts in mixed ecos aim to solved how to DISTRIBUTE production?
**gvt policies** -higher income earners pay more of income in **tax**--> redistributed to lower income earners through **welfare** -changes distribution of production would prevail if incomes determined entirely by market forces and price mechanism intervene in factor markets for redistributrion purposes -impose min wage in labour market

economics (2 decks)

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