Unit 3 AOS 2 - Ethan xoxo

Question 1

Define Economic Growth

Answer 1

Economic growth is the increase in the production of goods and services in an economy over time, measured by real GDP. It leads to higher incomes, employment, and living standards when sustained at a stable rate.

Question 2

Define the Business Cycle

Answer 2

The business cycle refers to the fluctuations in economic activity over time, moving through periods of expansion, peak, contraction, and trough. It reflects changes in GDP, employment, and inflation, influencing economic conditions and policies.

Question 3

What are the four stages of the business cycle?

Answer 3

Peak, Contraction, Trough, Expansion

Question 4

Define a recession

Answer 4

A recession is a period of declining economic activity, typically defined as two consecutive quarters of negative GDP growth. It is marked by rising unemployment, lower consumer spending, reduced business investment, and slowing inflation.

Question 5

Define aggregate supply

Answer 5

Aggregate supply (AS) is the total quantity of goods and services that producers in an economy are willing and able to supply at a given price level over a period of time. It is influenced by factors like resource availability, productivity, and production costs.

Question 6

Define aggregate demand

Answer 6

Aggregate demand (AD) is the total spending on goods and services in an economy at a given price level over a period of time. It is made up of consumption (C), investment (I), government spending (G), and net exports (X – M).

Question 7

What are the 2 types of government spending?

Answer 7

Recurrent Spending & Capital Spending

Question 8

Define Recurrent Spending

Answer 8

Recurrent spending refers to ongoing government expenses required for the day-to-day operation of public services. This includes wages for public sector employees, healthcare, education, and maintenance of infrastructure.

Question 9

Define Capital Spending

Answer 9

Capital spending refers to government investment in long-term assets and infrastructure, such as roads, hospitals, schools, and public transport. It aims to improve productive capacity and support economic growth over time.

Question 10

3 Reasons for negatively sloped Aggregate demand curve.

Answer 10

Purchasing power effect, Import Substitution effect, Interest rate effect.

Question 11

5 Sectors in circular flow model?

Answer 11

Overseas, government, financial, household, business.

Question 12

Define Strong & Sustainable Economic Growth.

Answer 12

The growth rate within an economy strong enough to which ongoing employment& incomes increase such that living standards increase over time

Question 13

Reasons for pursuing economic growth

Answer 13

-Boost MLS, measured by real gdp per person
-Increases NMLS
-Increase access to G & S
-Increase tax revenue for Govs & improves gov services

Question 14

6 Classifications of Labour force

Answer 14

-employed
-unemployed
-underemployed
-hidden unemployment
-long term-unemployment
-frictional unemployment

Question 15

employed

Answer 15

a person aged 15+ working at least 1 hour per week

Question 16

unemployed

Answer 16

someone 15+ looking for work

Question 17

underemployed

Answer 17

someone employed working less hours than they’d like

Question 18

hidden unemployment

Answer 18

people who aren’t counted as unemployed but would accept work if offered

Question 19

long term unemployment

Answer 19

when someone has been looking for work for 52 weeks +

Question 20

frictional unemployment

Answer 20

when people move between jobs

Question 21

4 market indicators

Answer 21

-the labour force
-participation rate
-unemployment rate
-underutilisation rate

Question 22

the labour force

Answer 22

all employed & unemployed people in an economy added together

Question 23

participation rate

Answer 23

labour force divided by population over 15 years old

Question 24

unemployment rate

Answer 24

number of unemployed people divided by labour force

Question 25

underutilisation rate

Answer 25

those who were either without work or wanted to work more hours

Question 26

cyclical unemployment

Answer 26

unemployment caused by fluctuations in AD

Question 27

Disguised unemployment

Answer 27

Disguised Unemployment occurs when workers appear employed but their productivity is very low or they are surplus to actual labour needs. This is more common in agriculture or family businesses where extra workers do not significantly contribute to output.

Question 28

headline inflation

Answer 28

raw inflation rate measured by cpi

Question 29

underlying inflation

Answer 29

removes the impact of volatile price changes to gain a more accurate indication of how inflation would be impacting the average person

Question 30

Inflation formula

Answer 30

(P2-P1)/P1 x 100

Question 31

how is inflation calculated

Answer 31

measured using cpi which tracks over 100,000 g&s over a period of time

Question 32

annual rate

Answer 32

how much prices have increased over 12 months

Question 33

annualised

Answer 33

only 1 quarter multiplied by 4 to protect a years worth

Question 34

demand inflation

Answer 34

when excessive AD causes shortages and puts upwards pressure on prices

Question 35

cost inflation

Answer 35

when businesses pass on increases in cost of production to consumers through higher prices

Question 36

inflation

Answer 36

prices rising over time

Question 37

disinflation

Answer 37

prices increasing at a reduced rate

Question 38

deflation

Answer 38

prices decreasing over time

Question 39

goal of low inflation

Answer 39

general price levels increase at a rate of 2-3% over time

Question 40

consequences of high inflation

Answer 40

-erodes household purchasing power -cant satisfy wants and needs -value of assets for wealthy rise -business facing higher cost of production may lay off workers

Question 41

consequences of low inflation

Answer 41

-businesses may see weak inflation as slow growth in profits -less incentivised to produce -higher unemployment -lower production -worsened living standards

Question 42

trimmed mean

Answer 42

average rate of inflation after trimming items with largest price changes weighted average of middle 70%

Question 43

weighted mean

Answer 43

the inflation rate of the item at the middle of the basket in the cpi

Question 44

what is RBA's inflation target

Answer 44

2-3%

Question 45

What is a cause of demand inflation over the past 12 months

Answer 45

-strong household spending -result of high wage growth and high government subsidies

Question 46

2 demand factors that could lead to the trend in real gdp

Answer 46

-consumer spending -government spending

Question 47

2 supply factors that could lead to the trend in real gdp

Answer 47

-productivity growth -labour force participation