Unit 3 AoS 2 - Notes

Question 1

Relationship between Mat + Non-mat

Answer 1

1. Conflicting relationship = tradeoff as progress in one area undermines the other
2. Compatible Relationship = progress in one promotes the other

Question 2

Level of EA Affects Mat LS through

Answer 2

1. Quantity and Quality of GnS
2. Employ opp and unemp rate
3. Incomes&raquo_space; consumption

Question 3

2 Important Features of BCD

Answer 3

1. Short-med term cyclical swings of EA and GDP
2. Sustainable long term 3% growth

Question 4

GDP, Unemp and Inflation in BCD Phases

Answer 4

2.4

Question 5

3 Factors of Stagflation

Answer 5

1. Stagnant/Slow Production
2. High Cost Inflation
3. High Structural Unemp

Question 6

Why BCD Can’t Show Stagflation

Answer 6

BCD assumes High inflat and high unemp are opposite

Question 7

Role of 5 Sectors

Answer 7

1. Households - sell resource, demand GnS
2. Business - demand resource, sell GnS
3. Financial - borrow S, relend for I
4. Gov - collect T and spend for G
5. Overseas - import for wants and export to meet others

Question 8

4 Flows of CFM

Answer 8

1. Avail resources
2. Total incomes/demand for resources
3. Total expenditure (AD)
4. Flow of GnS/GDP

Question 9

AD vs AS Influences on GDP

Answer 9

1. AD is short-term cyclical levels
2. AS Influences potential long-term EA
   - AS affects potential level of GDP - determined by quantity/quality of avail resources

Question 10

AD Equation Parts

Answer 10

2.6

Question 11

AD Factors

Answer 11

1. Disposable Income
2. Interest Rates
3. Consumer Confidence
4. Business Confidence
5. Exchange Rates
6. Overseas Econ Growth
7. Population Growth
8. Terms of Trade
9. Budget

Question 12

PC is limited by…

Answer 12

1. Volume of resources
2. Efficiency/Quality of Resources

Question 13

Firms Respond to Price Rises if…

Answer 13

1. Spare Capacity
2. Changes of better AS conditions

Question 14

Strong vs Weak: AD conditions impact

Answer 14

1. Production
2. Employment
3. Inflation
   Strong: up, up, up (only if shortages)
   Weak: down, down, down (if price discounts)

Question 15

Strong vs Weak: AS conditions impact on…
1. Production
2. Inflation
3. PC/GDP

Answer 15

Strong: up, lower cost inflat, up
Weak: down, up cost inflat, down

Question 16

AS Factors

Answer 16

1. Tech Advances
2. Exchange Rate
3. Resource Volume
4. Climatic Events
5. Production Costs
6. Gov Reg/Policies
7. Interruptions to Nat Supply Chain
8. Productivity Growth

Question 17

Why AD is Down Slope

Answer 17

1. PurchPow Effect - high price&raquo_space; buy less
2. Import Substitution Effect - imports r cheaper&raquo_space; less AD
3. Interest Rate Effect - higher price + inflation&raquo_space; expensive to borrow

Question 18

Sections of AS Slope

Answer 18

1. Hoz - low nat supply + unused PC&raquo_space; easy to raise produc without price changes
2. Elbow - little PC remaining - price rise needed to make extra production prof.
3. Vertical - no unused PC - can’t react to price rises

Question 19

If AD is at Hoz… EA:

Answer 19

1. Slow GDP
2. Higher Cyclical Unemp
3. Lower Demand Inflation

Question 20

If AD is at Vert… EA:

Answer 20

1. Max GDP
2. Low Cyclical Unemp
3. Demand Inflation

Question 21

AS Conditions Improves… EA:

Answer 21

1. Strong and Sustain EG
2. Slow Cost Inflat
3. Lower Struct. Unemp

Question 22

AS Conditions Degrade… EA:

Answer 22

1. Lower/Stagnant EG
2. Rise Cost Inflat
3. Rise Struct. Unemp

Question 23

Diff Gov Policies

Answer 23

1. AD Policies: soften BCD - tax outlays and interest rates
2. AS Policies: make growth more econ stable in long-term - grow PC/resources/efficiency + profits

Question 24

Limitations of Pure Demand Explanations

Answer 24

1. No stagflation considered
2. No Long-term EA Observed

Question 25

How is CPI measured

Answer 25

CPI is assessed quarterly (every three months) to measure changes in the retail prices of a basket of locally made and foreign goods and services that represent a high proportion of the expenditure of metropolitan households living in the seven capital cities.