Unit 3 AOS 2

Question 1

What is real GDP?

Answer 1

The goal is for the highest level of real GDP growth overtime that does not put pressure on the external environmental, and the environment considered around 3-3.5%.

Question 2

What happens when real GDP is under 3% or over 3.5%

Answer 2

Under 3% reduces living standards and over 3.5% is not sustainable .

Question 3

What is full employment

Answer 3

the lowest level of unemployment that is not under NAIRU, (level of unemployment below which inflation would be expected to rise), considered 4-4.5%

Question 4

What is NAIRU

Answer 4

the non accelerating inflationary rate of unemployment, level of unemployment below which inflation would be expected to rise.

Question 5

what is inflation CPI growth

Answer 5

the stable increase in average prices measured by CPI - consumer price index, over time which is ideally 2-3% per year

Question 6

What is the business cycle

Answer 6

the business cycle represents the flutuations in the economic activity (measured by real GDP) over time and the phases an economy moves through

Question 7

what are the stages of the business cycle

Answer 7

peak, contraction, trough, expansion - (recovery - back to peak)

Question 8

What phase is australia in right now in the business cycle

Answer 8

Real GDP is currently at 0.8, we are currently in a contraction phase, Real GDP at 0.8% means the economy is still growing, but at a slowing rate, indicating the start of a contraction phase where output and demand are weakening.

Question 9

what are material living standards

Answer 9

Material living standards refer to the level of access individuals have to tangible goods and services, impacting their quality of life. These goods and services include things like housing, transportation, healthcare, and technology

Question 10

What can affect material living standards

Answer 10

change - purchasing power of income (not changes in income),
Prices - inflation
Change in disposable income - tax, wages, interest rates

Question 11

What are NMLS

Answer 11

the aspects of life that affect quality of life but are not directly related to material goods or income, made up of intangible things like environment, freedom of speech, free elections, crime rates, and time off work.wha

Question 12

what are NMLS and what do they affect

Answer 12

health - mental and physical (financial stress)

environmental outcomes like pollution, waste

food scarcity due to severe weather and infrastructure damage

Question 13

what is the 5 sector flow model

Answer 13

The 5-sector circular flow model simplifies an economy by showing how money and resources flow between five key sectors: households, firms, the government, the financial sector, and the rest of the world.

Question 14

what are the components of the 5 sector flow model

Answer 14

(i) households, firms, financial (savings go in, investment out), gov (tax in, gov spending out), overseas(imports (leakages) go in, exports go out (injections)

Question 15

what is Aggregate demand

Answer 15

the total demand for goods produced domestically, including consumer goods, services, and capital goods.

Question 16

What are the components of AD and what factors to they affect

Answer 16

Consumption - disposable income (higher income = more spending), Interest rates: lower rates = more borrowing/spending. Consumer confidence (high, more spending)

Investment, Interest rates: lower rates = more business investment.

Net Exports (X – M) - Exchange rates: weaker AUD = more exports, fewer imports.

Question 17

What are all the factors of AD and what do they mean excluding exchange rates

Answer 17

Disposable income - the income after tax and welfare

Interest rates - cost of borrowing (RBA cut cash rate to from 4.35% to 4.1% in 2025%)

Consumer confidence

Question 18

What are exchange rates, and what is the current trend and what does it mean

Answer 18

Exchange rates - the val8ue of the Australian dollar against another currency
Which lower AUD value, out imports are more attractive to global markets, increasing demand,more international competition.

ALso, Vice versa (when AUD depreciates the exports are more attractive)

Right now the trend is going down
Which the value of injections should raise as demand for exports go up, shifting AD right through net trade

Question 19

what is the cash rate at right now and what does this mean

Answer 19

The RBA has cut the cash rate from 4.35% to 4.1 in 2025, which means the interest rates are lower. This can control inflation making financing more affordable, this is considered a injection as it lowers costs, encouragingm businesses to spend. improving living standards

Question 20

What is aggregate supply

Answer 20

aggregate supply refer to the ability and willingness of producers, profit margins, available resources and efficiency (productive capacity)

Question 21

what is productive capactiy

Answer 21

Productive capacity is the maximum output an economy can produce when all resources (labour, capital, etc.) are fully and efficiently used.

Question 21

What does strong and sutainable mean in the goal

Answer 21

Strong means real GDP growth is high enough (around 3–3.5% per year) to create jobs, raise incomes, and improve living standards.

Sustainable means growth can be maintained long-term without causing problems like high inflation, environmental damage, or overuse of natural resources.

Question 21

What are the factors of AS and what do they mean

Answer 21

Cost of Production - labour costs, wage price index, the total expenses a business incurs to manufacture goods or provide services.

Quantity and Quality of Resources - the available resources like (shortages and immigration) or supply shocks due to war or covid + the quality of resources like labour productivity impacts firms ability to supply.

Productivity - output per input, labour productivity (measured by GDP per hour worked)

Question 21

how would cyclone alfred impact a the AS factor of cost of production, eco activity and living standards

Answer 21

Cyclone Alfred damaged major infrastructure and agricultural areas, disrupting supply chains and production. This led to higher costs of production for businesses, especially in farming, construction, and transport. As production became more expensive, Aggregate Supply (AS) decreased, shifting the AS curve leftward.

With reduced AS, economic activity slowed down — output fell, and businesses may have reduced working hours or jobs, lowering real GDP growth. This negatively affected living standards, as goods became scarcer and more expensive (inflation), and household incomes fell due to job losses or reduced hours, lowering access to goods and services.

Question 21

What is the GOAL of Strong and Sustainable Economic Growht

Answer 21

the fastest rate of increase in REAL GDP to generate employment without creating excessive inflationary, external or environmental pressures, the goal is 3-3.5%

Question 21

what is real gdp

Answer 21

Real GDP is a macroeconomic measure of a nation's total economic output, adjusted for inflation

Question 21

To what extend is SSEG achieved in AUstralia right now

Answer 21

Sustainable -is mostly being (yes) met: inflation is moderating 2-3 % being at 2.4% and resources aren’t being overused. Strong - however, is not being fully achieved: GDP growth is below the 3–3.5% target, going down from 1.3% to 0.8% which is sluggish and reflects weak consumer spending, low business investment, and global uncertainty.

Question 21

what is real gdp per capita

Answer 21

Real GDP per capita is a measure of a country's economic output per person, adjusted for inflation, real GDP adjusted for population change, which is the best indicator for mls

Question 21

How to calculae Annual GDp

Answer 21

year 2 - year1/year 1 x 100

Question 22

Annualised quarterly equation

Answer 22

qrtly x 4 `

Question 22

how to calc quarterly gdp

Answer 22

q2 - q1/q1 x 100

Question 23

WHat is the goal of full employment

Answer 23

the lowest unemployment rate that improves living standards without going under NAIRU, (level of unemployment below which inflation would be expected to rise), considered 4-4.5%.

Question 24

What is the trend right now for unemployment

Answer 24

UR increasing from very low of 3.5% to 4.1% in 2024

Question 25

what is derived demand

Answer 25

the demand for a good or service that arises from the demand for another related good or service

Question 26

what are the types of unemployment and what do they mean

Answer 26

Unemployment - actively looking for work Structural - Structural unemployment happens when a worker’s skills no longer match the jobs available, often due to technological change or shifts in the economy. AN example is A car factory worker loses their job because the company switches to using robots for assembly. The worker’s skills in manual assembly are no longer in demand, and they may stay unemployed unless they retrain. Seasonal - eg fruit picker, holiday worker Frictional - in between jobs. AN example is A Melbourne graphic designer quits their job to look for a better one. While job hunting, they're frictionally unemployed—even though jobs exist that match their skills. Cyclical - Cyclical unemployment happens when there's a downturn in the economy and demand for goods and services drops, leading to job losses. EG - During the COVID-19 recession, many hospitality and retail workers in Sydney and Melbourne lost jobs because businesses closed or cut staff due to lower consumer spending.

Question 27

how to calc labour force and participation rate

Answer 27

unemployed + employed labour force/working age x 100

Question 28

how to calc underutilisation rate and underemployment rate

Answer 28

unemployed + underemployed/labour force x 100 underemployed/labour force x 100

Question 29

What do you need to include in a full employment question

Answer 29

trend, data, evaluating achievement, consequences

Question 30

What are the consequences of not meeting full employment

Answer 30

over 4-4.5% = less GDP, less income tax, reduce ability to provide essential services Under 4% or NAIRU, tight labour market, which demand for labour is greater than supply leading to workers having increased bargaining power, leading to increased pressure on wages

Question 31

What happens when wages increase

Answer 31

This leads to increased disposable income, increased injections, increased consumption, increased AD - shortage, increased prices, cost inflation, increased cost of production, lower profit margin, decreased AS,

Question 32

How can depreciation of the Australian dollar affect the achievment of full employment and LS

Answer 32

A depreciation of the Australian dollar can help achieve full employment by making exports cheaper and more competitive, boosting demand, production, and job creation—especially in sectors like tourism, mining, and agriculture. However, it can also raise the cost of imports, leading to higher inflation, which may reduce Australians’ purchasing power and harm living standards in the short term.

Question 33

What is the Goal of Low and Stable inflation

Answer 33

The primary goal of low and stable inflation is to achieve price stability, which benefits the economy by reducing uncertainty and supporting sustainable growth. A stable inflation rate, typically between 2-3% in many economies, (measured by CPI) which is consuumer price index

Question 34

What is the trend in low and table inflation

Answer 34

THe rate has decreased rapidly from a high of 7% and then down to 2.4% in 2024

Question 35

How is annual consumer price index growth calc

Answer 35

year 2 - year 1/ year 1 x 100

Question 36

What is the trend with inflation right now and what is disinflation

Answer 36

inflation went from 7/1% in 2023 to 2.4% in 2024, which this is called disinflation if the prices were to decrease then it would be deflation

Question 37

What are the consequences of low and stable inflation being too low

Answer 37

This would lead to delayed consumption, refers to the decision by consumers to postpone purchasing or using a good or service, even though they have the ability to do so immediately

Question 38

What are the consequences for inflation being too high

Answer 38

Erosion purchasing power, develop wage spiral, reduced international competitiveness, distorts investment decisions, lower return on investment

Question 39

For LSI, When inflation is too high what is erosion purchasing power

Answer 39

if inflation exceeds growth in wages, real income falls, buy less goods and services than before which decreases MLS.

Question 40

For LSI, When inflation is too high what is wage price spiral

Answer 40

employees negotitates higher wages to compensate for inflation (erosion of purchasing power), higher wages increases AD which increases consumption due to disposable income increasing CPI (shortages)

Question 41

For LSI, When inflation is too high what is reduced international competitiveness

Answer 41

higher inflation relative to global competitors reduces our exports attractiveness, therefore reducing injections relative to leakages in Net trade (x-m)

Question 42

For LSI, When inflation is too high what is distorts investment decisions and lower return on investment

Answer 42

high inflation leads to investment in safe havens to speculate like crypto rather than productive assets that could increase productive capactity increasing AS inflation can outpace investment returns

Question 43

what is cost inflation

Answer 43

occurs when the cost of production for goods and services rises, which passes on to consumers in the form of higher prices to maintain profit margins

Question 44

iS SSEG being achieved right now

Answer 44

Strong no as real gdp per capita, sustainable yes as cpi is slowing

Question 45

is full employment being achieved right now

Answer 45

yes at 4.1%

Question 46

is LSI being achieved right now

Answer 46

yes, currently at 2.4 but underlying is at 3.2%

Question 47

What is skilled immigration and how does it affect AS

Answer 47

Skilled immigration can increase Aggregate Supply (AS) by expanding the labor force and improving the quality of labor. Skilled workers contribute to higher productivity, innovation, and efficient production processes, which boosts the economy's overall capacity to produce goods and services. This results in the AS curve shifting to the right, meaning the economy can produce more at any given price level.

Question 48

5 sector flow model

Answer 48

The 5 Sectors: Households – provide labour and consume goods/services Firms – produce goods/services and pay wages Government – collects taxes and spends on public services Financial Sector – handles savings and investments (banks) Overseas Sector – trade (exports/imports) How it affects a market: Spending and income flow: More household spending = more demand in markets, boosting production and employment. Government actions: Tax changes or spending can either stimulate or slow markets. Interest rates: Financial sector decisions (like higher rates) affect how much households and firms spend or save. Trade: Exports bring money in, increasing demand for local goods; imports increase competition in markets.