eco

economic activity

the production, income and expenditure that takes place in an economy

Production

the total value of goods and services that are produced in an economy

Income

the total income that has been earned by those who have contributed to the production of goods and services

Expenditure

the total spending undertaken on australian goods and services (global and national)

GDP

gross domestic product - the final market value of all goods and services produced in an economy over a period of time

market value

price x quantity

final market value

the final or end price at which goods are sold in a competitive market

AD formula

ad = c + i + g + x - m

Nominal gdp

gdp not adjusted for inflation

real gdp

gdp adjusted for inflation - uses price of previous years

If inflation is greater than growth in nominal gdp

real gdp is falling

if inflation is equal to the growth in nominal gdp

real gdp is the same

if inflation is less than growth in nominal gdp

real gdp is rising

what is an economic indicator

a piece of economic data, usually of macroeconomic scale, that is used by analysts to predict the health of an economy

Leading indicator

predict the future movements of an economy, e.g. share prices, consumer confidence, business sentiment, loan approvals

Coincident indicators

real-time data, seen at the same time of specific economic activities, e.g. gdp, retail sales, exchange rate

Lagging Indicators

Are seen after specific economic activity occurs, e.g. unemployment rates, inflation, interest rates

HDI

human development index, invented by the un, measures social and economic indicators - life expectancy at birth, education and national income per capita, score 0-1

Economic prosperity

focuses on a nations overall health, with a particular and emphasis on material factors e.g. incomes, production levels, expenditure, wealth creation

Environmental sustainability

looks to the preservation of natural resources and environment into the future by ensuring current practice doesn’t contribute to environmental harm or future erosion

Sustainable development

development that meets the needs of the present without compromising the ability of future generations to meet their own needs

Aggregate demand

The total demand for all finished goods and services produced in an economy

How is aggregate demand expressed?

As the total value of money exchanged for the goods and services at a specific price and point in time

If interest rates decreases what happens to aggregate demand ( ad curve)

ad increases (shift right) because it is cheaper to borrow money so people will spend more

Aggregate supply

The total volume of goods and services that producers in an economy are willing to produce over a period of time

Short run AS

shifts when producers change production levels but without a change in the longterm capacity to produce more or less

Short run AS examples

lower wages, government subsidies, change in price of materials

Long Run Aggregate supply

Changing production capabilities in the long run, pushing ppf forward

examples of long run AS

More resources become available, increased efficiency

Productivity - how is it measured

The total volume of production compared to total inputs, output over input per unit of input

productivity definiton

how efficiently inputs are being used to produce goods and services

reduction in taxes on short run aggregate supply (SRAS)

Reduces costs for businesses leading to higher levels of investment, which increases sras because they may be able to produce more in the short run

increased subsities for SRAS

would reduce the cost of production so they can produce more while spending the same amount of money.

reduction in taxes for LRAS

incentives investment in capital, r and d which can lead to more productivity over time, increasing lras

increased subsidies for lras

creates longterm investment in technology, etc which would increase productivity and efficiency, increasing lras

Expansionary budgetary (fiscal) policy

tax cuts and increased government spending to increase aggregate demand

expansionary monetary policy

Central banks lower interest rates to encourage consumer spending and business investment

Contractionary budgetary (fiscal) policy

Increased taxation and reduced government spending to decrease aggregate demand

Contractionary monetary policy

central banks increase interest rates to discourage consumer spending and business investment

Monetary policy

How the goverment uses interest rates to control gdp growth

Dollar appreciation for AS

Increase

Dollar appreciation for AD

decrease, because other countries don’t want to buy our goods

Dollar deappreciation for AS

Decrease

Dollar deappreciation for AD

increase

Government spending exceeds revenue from taxation

Budget deficit

Government spending is less than revenue for taxation

budget surplus

Expansionary fiscal policy affect on AD

increase - the injection is greater than the leakage

Fiscal policy

when the government changes its annual budget, changes taxes, expansionary or contractionary

Contractionary fiscal policy affect on AD

decrease, the leakage is greater than the injection

Overnight cash rate

The interest rate the RBA charges banks for overnight loans

Open market operations

When the government buys and sells gov bonds through the rba, changing the amount of money in the economy, influencing interest rates