economics term 1 revision

What is the business cycle?

the ongoing pattern of expansion and contraction in economic activity

What are the targets for the economy?

GDP: 2-4%

Inflation: 2-3%

Unemployment: 4-5%

What is the role of the ABS (Australian Bureau of Statistics)?

the ABS collects official data on Australia’s economy, population, and society to help people make informed decisions.

How does economic performance affect living standards?

• Strong economic performance → more jobs, higher incomes, improves living standards.

• Poor performance → fewer jobs, lower incomes, lowers living standards.

What is macroeconomics, and why do we measure the economy?

• the study of the economy as a whole

• helps make predictions, better decisions and reduces uncertainty

How do other countries (overseas sector) influence our economy?

• when China grows → Australia exports more

• if interest rates change in another country → money moves between countries

• both global and local factors impact our economy

Complete the table (high, low, increasing, decreasing)

How are economies measured (3 main quantitative indicators)?

1. economic growth - is the economy producing more goods & services?

2. unemployment - how many people can’t find work?

3. inflation - are prices rising too quickly?

What is GDP and why is GDP data gathered?

• GDP is the total value of all goods and services produced in a country in one year.

• Data is gathered to measure economic performance, track growth, and compare living standards over time.

GDP per capita

• GDP divided by population

• shows the average output per person and gives an indication of living standards.

Limitations of GDP

it doesn’t measure:

• wellbeing

• unpaid work

• environmental damage

Why does economic growth matter and what does it mean to grow sustainably?

• creates jobs, increases income, and improves living standards.

• Sustainable growth is steady growth (about 2–4%) that meets current needs without harming future generations

What is unemployment and how do we measure it?

Types of unemployment. When they occur? Give an example.

• frictional

• structural

• cydical

• seasonal

Effects of high unemployment

negative

• lower standard of living

positive

• reduces inflation

What is inflation?

an increase in the prices of goods and services bought by households

Is it bad if prices rise?

• no, it is a sign of a healthy economy

• because it means there are lots of transactions and its adding value to what we produce and consume

How is inflation measured?

• by the ABS, using the CPI (consumer price index)

• CPI: a measure of the average change over time in the prices paid by households for common goods and services

Causes of inflation

Demand-pull inflation: demand is higher than supply

👉 Too much money chasing too few goods.

Cost-push inflation: businesses have higher production costs

👉 It costs more to make things, so prices go up.

Effects of high inflation

• Decreased purchasing power for consumers

• Increase in interest rates

• Worsening income inequality

How do businesses respond during an economic downturn?

• Reduce output → because demand is falling

• Cut costs → to protect profits

• Increase marketing/promotions → to attract limited consumers

• Invest in innovation → to gain competitive advantage

How do businesses respond during an economic boom?

• Increase output → to meet higher demand

• Hire more staff / expand operations → to support growth

• Boost marketing / promotions → to capture more customers

• Invest in innovation → to stay ahead of competitors