1
Q
what is macroeconomics
A
the study of an economy as a whole, looking at aggregate figures like national income etc
2
Q
what is economic activity
A
production, income, expenditure across an economy, measured by total expenditure, total income and total production
3
Q
what is production
A
total value of g/s produced in an economy
4
Q
what is income
A
total income earned by those who contribute to production of g/s within economy
5
Q
what is expenditure
A
total spent on producing g/s
6
Q
what is GDP
A
- gross domestic product
- final market value (price*quantity) of all g/s produced in an economy over a period of time
7
Q
what is final market price
A
the final price g/s are sold for in a competitive market (off the shelf)
8
Q
what is the most common way of calculating economic growth rate
A
percentage changes in GDP
9
Q
what is GDP per capita
A
income per person
10
Q
what is the aggregate demand formula
A
AD=C+I+G1+G2+X-M (G1+G2 can also be one G)
11
Q
what do all the letters in the aggregate demand formula mean
AD=C+I+G1+G2+X-M
A
C- private consumption by households
I - private investment spending by firms on equipment
G1 - govt consumtion spending (payments of income etc)
G2 - govt investment spending (hospitals, roads etc)
X-M - net overseas spending (exports - dom. spending on imports)
12
Q
what is real GDP
A
- shows increase in economic growth after removing changes in price
- discounts inflation
- uses previous periods price
13
Q
what is nominal GDP
A
- figure of growth that has not been adjusted for inflation
- uses current prices
14
Q
what is chain volume GDP
A
- uses previous periods prices to calculate current periods volume
- allows increase of value to be shown because of rising activity or volumes
15
Q
what is the formula for calculating nominal GDP percentage changes
A
(nom. 2 -nom 1)/nom 1 *100
16
Q
what is the formula for calculating real GDP percentage changes
A
(real 2 -real 1)/real 1 *100
17
Q
if inflation is > growth in nominal GDP
A
-real GDP falls
- economy shrinks
18
Q
if inflation = growth in nominal GDP
A
- real GDP stays the same
- economy is the same
19
Q
if inflation < growth in nominal GDP
A
- real GDP rises
- economy grows
20
Q
what are benefits of economic growth
A
- employment opportunities
- increase in matieral living standards
- improved non-material living standards
- economic development (increased govt spending)
21
Q
what are some costs of economic growth
A
- Boom and bust (unsustainable and unstable economic growth)
- inflation
- structural unemployment due to increased capital
22
Q
what are some environmental costs of economic growth
A
- deteriation of common access resources
- accelaration of climate change
- food insecurity
- degraded ecosystems
23
Q
what are some social costs of economic growth
A
- reduced leisure time due to increased working hours
- poorer health outcomes
- social inequality (w/o govt policies)
- “affluenza”
24
Q
business cycle
A
depicts the rise and fall of output over time
25
what are the stages of the business cycle in order from expansion
- expansion
- peak
- recession
-depression
- trough
- recovery
REPEAT
26
causes and effects of higher economic activity (in each flow)
flow one - business employ more resources
flow two - rise in income paid to resource suppliers
flow three - rise in AD due to increased income
flow four - increased production which leads to higher GDP
27
causes and effects of lower economic activity (in each flow)
flow one - business employ fewer resources
flow two - fall in income paid to resource suppliers
flow three - fall in AD due to decreased income
flow four - decreased production which leads to lower GDP
28
key characteristics from economic expansion
- increased ouput
- decreased unemployment
- increased wages
- more spending (consumption)
29
key characteristics from economic expansion
- increased ouput
- decreased unemployment
- increased wages
- more spending (consumption)
30
economic indicators
- piece of economic data
- usually macroeconomic
- used to determine overall health of an economy
31
economic indicators examples
consumer price index (CPI)
gross domestic product (GDP)
unemployment figures
32
leading indicators
used to predict future economic movements - before economy moves
33
leading indicators examples
consumer confidence index - indicated future spending patterns
business sentiment index - spending intentions of econ. agents
volume - building permits, loan approvals, job vacancies
34
coincident indicators
real time data of economic movement to provide insight into what is currently happening
35
coincident indicators examples
GDP, unemployment levels
36
lagging indicators
seen after economic movement
may cause responses to arrive later than optimal
37
lagging indicators examples
unemployment rates, CPI, interest rates
38
material living standards (MLS)
access to physical goods and services, often determined with levels of disposable income
39
limitations of GDP (7)
1. inaccurate - excludes non-marketed g/s
2. doesn't measure change in quality of g/s
3. inaccuracies when converting nominal to real GDP
4. largely based on estimates
5. fails to include depletion of natural resources, negative externalites
6. fails to factor the value of leisure time
7. doesn't distinguish transactions between harmful and beneficial to societies welfare
40
non-material living standards (NMLS)
relates to quality of life, not just the monetary value of one's life
41
non-material living standards examples
- happiness
- low crime rates
- peace
- work-life balance
- democracy
- no pollution
- religious and political freedom
-access to education and healthcare
42
alternative economic indicators
things other than GDP to measure a countries economic wealth
43
alternative economic indicators examples
1. genuine progress indicator
2. australias wellbeing framework
3. human development index
4. measures of australias progress
5. gross national happiness
44
formula for aggregate demand
AD=C+I+G+X-M
45
aggregate demand
economic measure for total amount of demand for finished g/s produced in a economy.
46
how is aggregate demand expressed
expressed as total money exchanged for g/s at a specific period in time and price level
47
effects of stronger aggregate demand
- conditions of higher aggregate demand increase
- rise in AD
- increase on sales, stocks of unsold g/s fall, may cause inflation or shortages
- business firms try to expand GDP to fill shortages, however lack of unused capacity leads to rising prices and inflationary boom
- to lift production, business will employ more resources and unemployment levels decrease
- cycle repeats
48
effects of weaker aggregate demand
- conditions of weaker demand present
- fall in AD
- decrease on sales, stocks of rise, may cause cut prices and slows inflation
- business firms try to reduce output, GDP falls
- to reduce production businesses will reduce resources, unemployment rises
- cycle repeats
49
conditions of higher aggregate demand (7)
- higher consumer confidence
- increased business confidence
- rising overseas economic activity
- weaker $AUD
- low interest rates
- tax cuts
- increased govt spending
50
conditions of weaker aggregate demand (7)
- lower consumer confidence
- decreased business confidence
- falling overseas economic activity
- rising $AUD
- higher interest rates
- tax rises
- decreased govt spending
51
factors affecting consumer spending (C) - (5)
- household disposable income
- consumer confidence
- interest rates
- rate of population growth
- government budgetary policies
52
factors affecting private investment spending (I) - (3)
- business confidence
- interest rates
- company tax rates
53
factors affecting government spending (G) - (5)
- level of unemployment
- level of inflation
- economic growth
- speed of population growth
-concern about levels of govt debt
54
factors affecting exports (X) - 4
- exchange rates
- natural disasters and severe weather
-overseas economic activity
- inflation (relative to overseas)
55
factors affecting imports (M) - 4
- exchange rates
- trends in local economic activity
- consumer and business confidence
- inflation (relative to overseas)
56
aggregate supply
total volume of g/s producers in an economy are willing to produce over a period of time
57
short run aggregate supply
producers change production levels without a change in long term capacity
58
effects of short run aggregate supply
- lower wages
- price of raw materials and other inputs (inflation)
- subsudies and taxes from govt
- supply shocks
59
long run aggregate supply
increasing productive capacity to ensure sustainable increased supply
60
productivity
how efficiently inputs are being used to produce g/s
total volume of production compared to total inputs used
61
discretionary vs disposable income
disposable - income after tax is taken
discretionary - income after mortgage payments are taken from DISPOSABLE income
62
how does economic activity affect material living standards
employment opportunites
wages
BOTH OF THESE COULD INCREASE OR DECREASE
63
how does economic activity affect non - material living standards
access to education
leisure time
64
economic activity or not: buying a box of cereal from coles
economic activity
65
economic activity or not: babysitting your cousin
nopety nopety nope
66
what is the purpose of economic activity (5)
production of g/s
employment opps
resource allocation
improving living standards
sustainability
67
what is economic growth
increase in production of g/s over a specific time period
- usually measured by GDP
68
if population growth is higher than GDP...
GDP per capita will fall
69
what is a recession
two or more consecutive periods of negative economic growth
70
budgetary expasionary policies
- tax cuts
- increased govt spending
71
budgetary contractionary policies
- tax increases
- decreased govt spending
72
monetary expasionary policies
- lower interest rates
73
monetary contractionary policies
- higher interest rates
74
what do monetary policies include, affect and how is it controlled
- how govt uses interest rates to control GDP growth
- affects AD and AS
- controlled via cash rate and open market operations
75
what is the cash rate
interest rate charged by the RBA to commercial banks on overnight loans
76
what is fiscal policies
- where govt sets annual budget in may
- involves changes taxes
77
budget deficit
if government spending > tax earning
78
budget surplus
if government spending < tax earnings
79
what is expansionary fiscal polices affect on AD and/or AS
increases aggregate demand
80
what is contractionary fiscal polices affect on AD and/or AS
decreases aggregate demand
81
fiscal policies
- cutting tax rates
- education spending
- national infrastructure projects
- immigration policies
- greater competition
82
what does HDI measure
wealth - GDP per capita
health - life expectancy
knowledgability - average years of schooling
83
how does HDI measure living standards
GDP per capita - material living standards
life expectancy - quality of life
education levels - access to education
economics - unit 1/2
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