Year 12 term 1 or 2

Question 1

What is economic growth?

Answer 1

This is an increase in the volume of goods and services that an economy produces over a period of time. IT is measured by GDP, that is the percentage increase in teh value of Goods and Services produced in an economy over a period of time.

Question 2

How do you calculate economic growth as a %

Answer 2

Real GDP (current Year) - Real GDP (Previous Year)
----------------------------------------------------------------------------
                        Real GDP (previous year)

Question 3

What is Aggregate Demand? (AD)

Answer 3

This is the total level of expenditure in an economy over a given period of time. It includes consumption; investment; government spending; and net export spending (export sending minus import spending)

Question 4

What is Aggregate Supply? (Y)

Answer 4

This is the total level of income in an economy over a given period of time. Part of national income is collected by the government through taxation, and the rest is either spend on consumption or saved.

Question 5

How do you calculate Aggregate Demand?

Answer 5

AD = C + I + G + (X-M)
Where:
AD= Aggregate Demand
C = Consumper spending by households
I = Investment spending by businesses 
G = Goverment spending
X = Export revenue
M = Spending on imports

Question 6

How do you calculate Aggregate Supply?

Answer 6

Y = C + S + T
Where: 
Y = Aggregate supply or national income
C = Consumer spending by households
S = Saving by households
T = Taxation by government

Question 7

When does equilibrium occur in terms of aggregate supply and demand?

Answer 7

Aggregate Supply = Aggregate Demand

Question 8

What is average propensity to consume? (APC)

Answer 8

This is the proportion of total income that is spent on consumption

Question 9

What is Average Propensity to Save? (APS)

Answer 9

This is the proportion of total income that is not spent but is saved for future consumption.

Question 10

What is the multiplier effect?

Answer 10

It is when the greater than proportional increase in national income results from an increase in aggregate demand. So when lower interest rates occur, businesses will invest and expand. This will provide increased income for individuals, the individuals will consume more, which will further increase expenditure and so on. This continuously multiplies further and further. This will eventually slow down due to many individuals will choose to save some of the investment, resulting in fewer results. The savings component is the leakage of the effect.

THE NUMBER OF TIMES THE FINAL INCREASE IN NATIONAL INCOME EXCEEDS THE INITIAL INCREASE IN EXPENDITURE THAT CAUSED IT IS THE MULTIPLIER. THE MECHANISM BY WHICH CHANGES IN AGGREGATE DEMAND RESULT IN CHANGES IN GDP IS KNOWN AS THE MULTIPLIER EFFECT.

Question 11

What is the marginal propensity to consume (MPC)

Answer 11

It is the proportion of each extra dollar of income that is spent on consumer products.

Question 12

What is the marginal propensity to save? (MPS)

Answer 12

It is the proportion of each extra dollar of income that is saved.

Question 13

How to calculate MPC

Answer 13

Change in INcome

Question 14

How to calculate MPS

Answer 14

Change in Income

Question 15

How is an economys aggregate supply determined

Answer 15

It is determined by the quantity and quality of the factors of production, natural resources, labour, capital and the ability of entrepreneurs to turn that into goods and services. Economists refer to aggregate supply as an economic potential, this means that when aggregate supply increases, so do the economic potential to grow faster.

Question 16

How can aggregate supply be increased?

Answer 16

• Population growth: More labour to produce more goods and services.
• Discovery of new resources: New mineral deposits etc, allow more goods and services to be produced.
• More skilled workers: Labour will be able to complete jobs faster and more efficient.
• Increased Capital: More efficient production
• New Technology: New efficient technology increases the ammount of goods and services made or increases profit.
• Government Policies: Loose regulations and taxes allow goods and services to be made with higher profits.

Question 17

What is Fiscal Policy

Answer 17

This is the use of the budget in order to achieve economic objectives. Government expenditure through the budget represents an injection, whilst taxation is a leakage.

Question 18

What is monetary Policy?

Answer 18

Monetary policy is the RBA influencing the level of interest rates in the economy, which in turn influences the level of aggregate demand and the rate of economic growth.

Question 19

What is the labour force?

Answer 19

This is people aged 15 and over who are currently employed for at least 1 hour per week of paid work. This does not include full-time nonworking students above 15.

Question 20

What is the labour force participation rate?

Answer 20

This is the percentage of the population that are in the labour force out of the people that can be in the labour force.

Question 21

How to calculate labour force participation rate?

Answer 21

The working-age population (15+)

Question 22

What is unemployment?

Answer 22

These are the number of people who do not have a job but are actively seeking work. This can be looking at advertisements, registering with an employment agency or responding to employers.

Question 23

How to calculate unemployment?

Answer 23

         Total Labour Force

Question 24

What are the main types of unemployment?

Answer 24

Structural unemployment
Cyclical Unemployment
Frictional Unemployment
Seasonal Unemployment
Hidden Unemployment
Underemployment
Long Term Unemployment
Hard Core unemployment

Question 25

What is structural unemployment

Answer 25

This is not their fault. It is because their skills are redundant

Question 26

What is cyclical unemployment

Answer 26

This is not their fault. It is the economy fault

Question 27

What is frictional unemployment

Answer 27

This is people who are in the middle of switching jobs.

Question 28

What is seasonal unemployment

Answer 28

This is people who are fired due to their job is only needed in the summer or winter. For example, a swimming store fires many workers in the winter.

Question 29

What is hidden unemployment

Answer 29

These are people who are unemployed but are not seeking for a job so do not count as unemployed.

Question 30

What is underemployment

Answer 30

These are people who work less than 35 hours per week but want to work more. This represents 8% of the current work force.

Question 31

What is long term unemployment

Answer 31

These are people who have been unemployed for 12 months or longer which is usually due to their skills are now redundant.

Question 32

What is hardcore unemployment

Answer 32

This are people who have been unemployed for so long, that employees consider unemployable due to their personal circumstances. This includes mental issues and disabilities.

Question 33

What are labour market policies?

Answer 33

These are policies that governments extend education and training programs to people who are out of work or risk being unemployed in the near future. For example the government could pay the tafe fees for an individual in order to get him a job. This allows the government to begin earning money through wage taxes once again.

Question 34

What is the consumer price index (CPI)

Answer 34

This summarises the movement in the prices of a basket of goods and services weighted according to their significance for the average Australian household. It is used to measure Inflation in Australia.

Question 35

How to calculate the inflation rate

Answer 35

Consumer price index (current year) - CPI(previous year) ---------------------------------------------------------------------------------- Consumer Price Index (Previous year)

Question 36

What is external stability?

Answer 36

This is an aim of government policy that seeks to promote sustainability on the external accounts so that Australia can service its foreign liabilities in the medium to the long run and avoid currency volatility.

Question 37

What is the Current account deficit (CAD)

Answer 37

A key measure of an economy's external stability is the CAD as a % of GDP. The CAD as a % of GDP is the best measure of trends in the current account over time, rather than the size of the CAD in dollar terms. Using this measure allows an accurate comparison across time and between countries.

Question 38

What is Net Foreign Liabilities

Answer 38

These reflect Australia's total financial obligations to foreigners, minus the total financial obligations of foreigners to Australia. There are two components of net foreign liabilities. These are net foreign debt and net foreign equity.

Question 39

How to calculate Net Foreign Debt

Answer 39

It is the total stock of loans owed by Australians to Foreigners, - the total stock of loans owed by foreigners to Australians.

Question 40

How to calculate Net Foreign Equity

Answer 40

This is the total value of assets in Australia, such as land shares and companies in foreign ownership, - Total value of assets overseas that are owned by Australians.

Question 41

What is Mean Income?

Answer 41

This is the average level of income. It is calculated by dividing the total income of a group by the number of income recipients in that group.

Question 42

What is Median Income?

Answer 42

It is the level of income that divides the income recipients in a group into two halves, one half being incomes above the median, and the other half having incomes below the median.

Question 43

What is the GINI coefficient?

Answer 43

The GINI coefficient is a single statistic that summarises the distribution of income across the population.

Question 44

How to calculate the GINI Coefficient.

Answer 44

area between the lorenzo curve and the line of equality, --------------------------------------------------------------------------------- Total area under the line of equality

Question 45

What are some sources of income and wealth?

Answer 45

* Wages and Salary * Rent From Land they own * Investment funds and bank deposits * Funds from business * Social welfare

Question 46

What are the costs of inequality

Answer 46

* Inequality reduces the overall utility of money. * Inequality reduces economic growth as the wealthy have a higher propensity to save as they cant spend it all, whilst the poor have a high propensity to consume. * Inequality creates bad consumption as the wealthy buy things like designer clothes to flex their wealth and that it. It is a waste of money and could be used to help the poor. * Inequality creates relative poverty. This may reduce the labour force participation rate. * Inequality increases the cost of welfare support as there is more people on welfare. This money could have been redistributed to other areas of the country.

Question 47

What are the benefits of inequality?

Answer 47

* Inequality encourages the labour force to increase education skills in order to get a job to get out of their position. * Inequality encourages poor to work harder * Inequality can make the labour force more mobile as they are desperate to get a job. * Inequality encourages entrepreneurs to take more risk to be rich, not poor.