ECONOMICS: Topic 3 > Economic Issues

revision for AT1 on content from topic 3

what is the main economic issue?

unlimited wants, limited resources

(land, labour, capital)

what is economic growth?

the increase in the value of goods and services produced over time (measured by real GDP)

what is unemployment?

the proportion of the labour force that is willing and able to work but cannot find a job

what is inflation?

sustained increase in the general price level of goods and services, measured by headline and underlying inflation

what is the distribution of income & wealth?

how income and assets are shared across households

what is the law of demand?

states that as prices decrease, demand increases

what does aggregate demand refer to?

the total demand of goods & services within an economy at a certain price level

what does aggregate supply refer to?

the total amount of goods & services an economy can produce at a certain price level

what is the memory key for remembering the set up of an AD/AS graph?

Demand - to the dirt

Supply - to the sky

what does AD/AS diagram show?

how shifts in aggregate demand & aggregate supply may impact shifts in price (inflation) and economic output (growth)

what words describe movement along the demand & supply curves?

expansion & contraction

what words describe a shift of the demand & supply curves?

increase & decrease

what is GDP?

Gross Domestic Product - total value of goods & services produced in an economy over a year

what is nominal GDP growth?

where GDP increases due to a change in prices (inflation), NOT an increase in output

what is real GDP growth?

where GDP increases due to a change in the output of goods and services, adjusted for changes in inflation over time.

what is more accurate for measuring GDP & why? (real or nominal)

real GDP, because increasing the volume of output is what improves living standards

what is the economic growth formula?

what is the formula to convert nominal GDP into real GDP?

removes effects of inflation

what is the formula of aggregate demand (AD)?

C + I + G (X-M)

what type of growth does demand-side (AD) growth drive?

short-term growth

what type of growth does supply-side (AS) growth drive?

long-term growth

what is aggregate supply determined by?

the quantity & quality of factors of production (land, labour, capital, entreprenurship)

what does the simple multiplier calculate?

how much additional GDP results from an additional change in expenditure

when can increased economic growth result in inflation?

when AD (inflationary pressure) outpace AS

what are some consumption factors that may contribute to economic growth?

disposable incomes, interest rates & consumer expectations

what are some investment factors that may contribute to economic growth?

business profits, business expectations & interest rates

what is the natural rate of employment?

rate of employment with no cyclical unemployment

what is the NAIRU?

non-accelerating inflation rate of unemployment, which is the lowest possible rate of unemployment where inflation doesn’t accelerate

what are some examples of the main groups affected by unemployment?

1. Youth

2. Mature-age workers

3. Low-educated individuals

4. Low-skilled occupations

5. Industries facing structural change

6. First Nations Australians

7. Migrants

8. And, specific regions.