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38 Cards in this Set
- Front
- Back
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GDP (Gross Domestic Product)
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The quantity of goods & services produced in an economy over a given time
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The business cycle
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shows the typical behaviours over time in economic activity - a cycle of economic contraction and expansion
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Characteristics of a Boom
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increased output
increased inflation increased income increased expenditure Decreased government spending (economic fiscal policy) |
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Characteristics of a trough
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increased cyclical unemployment
increased saving decreased company profits decreased growth rates of consumer spending decreased sale of consumer durables decreased confidence decreased price of some goods |
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Characteristics of an upswing
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increased expenditure
increased income increased output |
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Characteristics of a Downswing
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decrease in GDP
decrease in consumption decrease in investment, inflation, interest rates increased unemployment |
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Aggregate Expenditure
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AE= C + I + G + X - M
c- consumption i- investment g- gov expenditure x- exports m- imports |
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Factors affecting Consumption Spending
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Level of disposable income
interest rates stock of wealth expectations (consumer) Economic policy (Fiscal & Monetary) |
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Factors Affecting Investment
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Interest rates
business profits government activities (infrastructure) and fiscal/monetary policies |
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Factors affecting government expenditure
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Government revenue/policies
stage of business cycle automatic stabilisers |
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Factors affecting net exports
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domestic economic activity
exchange rate terms of trade |
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Macroeconomic Equilibrium
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Where short run aggregate demand is equal to short run aggregate supply
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The multiplier Effect
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The ratio of the change in income caused by a change in spending. Multiplier value is determined by the MPC
"One person's spending is anothers income" |
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Aggregate Demand
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total amount of spending in the economy from all sectors
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Factors affecting AD
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consumer confidence
disposable income cost of credit credit availability stock of wealth interest rates |
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Aggregate Supply
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Shows relationship between price level & level of real total output from firms
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Factors affecting AS
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costs of production (labour natural capital)
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Economic Growth
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Increasing capacity of an economy to satisfy the needs and wants of society
target 3-4% |
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Full Employment
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achieving the natural rate of unemployment of 0 cyclical unemployment
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Price stability
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steady year on year increase in CPI
target 2-3% inflation |
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Equitable distribution of income
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Vertical - taxing rich and giving to poor
horizontal - providing equal opportunity |
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External stability
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Size of CAD
Stability of exchange rate ability to service foreign liabilities |
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Economic policy objectives of RBA
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stability of currency
full employment economic prosperity and welfare |
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Recognition lags
Implementation lag Effect Lag |
time to notice change is needed for economy
time to conceive and enact a policy time for a policy to take effect |
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Fiscal Policy
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Changes in G & T in order to achieve particular macroeconomic goals
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Budget deficit
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gov rev lower than expenditure
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Budget surplus
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gov rev greater than expenditure
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Weaknesses of Fiscal Policy
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inflexible
implementation lag political factors crowding out unforeseen circumstances |
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Strengths of Fiscal Policy
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selective
direct automatic stabilizers effective in recession |
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Automatic Stabilisers
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fiscal changes to the economy that occur automatically to stabilise the business cycle
progressive taxation welfare payments flexible exchange rate spending on imports |
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Discretional stabilisers
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deliberate changes to fiscal policy made by gov through passage of a bill
changing tax rates infrastructure increased welfare entitlement |
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Microeconomic Reform
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Policies and programs attempting to make markets work better
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productivity
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ability to produce more output with same or less output
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Efficiency
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Producing goods and services society wants at lowest possible cost
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Structural Change
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process by which the pattern of production in an economy alters over time
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indicators of SC
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employment patterns
proportion of GDP contributedd by sectors spending patterns nature of business activity patterns of resources usage |
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Strengths of MER
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increased efficiency and productivity
increased economic growth decreased unemployment |
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Weaknesses of MER
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Industry decline = short term structural U/E
Decreased political incentive great inequality growth benefits accrue to city areas uncertainty |
