Studied by 10 peopleWhat five sectors comprise the Australian economy?
Household, firms, financial, government and overseas
What is meant by the term ‘leakage’ and what is the impact of it?
Leakage is when money is being not used and escaped from the economy. When leakages are higher than injections, less money is circulating in the economy, therefore unemployment increases and spending decreases.
What is meant by the term ‘injection’ and what is the impact of it?
Injection is when money is being used and being put into the economy. When injections are higher than leakages, more money is circulating in the economy, therefore unemployment decreases and spending increases
What is the role of the Australian Securities and Investments Commission (ASIC)
monitoring the financial industry
monitoring the provision of financial servies such as investment advice
providing consumer protection in financial services, including shares, managed funds, superannuation, insurance, cred and despoit itaking
enforce and regulates laws within the financial sector
Describe the role of the financial sector in faciliating business investment
Banks and other financial institutions collect money from savings in deposits and lend this money to companies through a way called investment.
What are the main causes of contraction?
Falling levels of production (output)
Decreasing consumer spending
Rate of inflation may fall
Wage rates generally fall
Interest rates eventually fall
Level of unemployment rises
What are the main causes of expansion?
Rising levels of production (output)
Increasing consumer spending
Rate of inflation may rise
Wage rates generally rise
Interest rates eventually rise
Level of unemployment falls
What are recessions
Recessions are two quarters of negative economic growth. It is caused by lack of spending, not the inability of the economy to produce goods and services
What are booms
Booms are a period of elevated or increased growth within the economy. It is like a bubble that is being blown bigger and bigger and it is ultimately going to lead to a burst of the economy
What are the causes of the Global Financial Crisis?
Excessive risk-taking
Increased borrowing by banks and investors
Regulation and policy errors
How did the Australian Government respond to the Global Financial Crisis?
The government implemented expansionary fiscal and monetary policies to stimulate consumer spending and business invest. Reserve bank lowered interest rates to allow consumer have more money to spend into the economy
What does the Business Cycle Model show?
It shows the four phases an economy experience over time; boom, recession, contraction and expansion
What are the phases in the business cycle
Boom- income at its highest, full employment, wages and salaries are relatively high, businesses operating at full capacity, high interest rates, inflation rises rapidly
Recession- high unemployment, low inflation, wages and salaries fall or grow very slowly, low consumer demand, high rate of business failure, interest rates are low
Contraction- Decreasing consumer spending, rate of inflation may fall, wages tend to fall, interest rates likely to fall, rising unemployment
Expansion- increasing consumer spending, inflation may rise, wages likely to rise, interest rates likely to rise, unemployment falls
Why does the level of economic activity fluctuate over time?
The level of economic fluctutaes due to how consumers, business and government spent their money in the economy.
Outline how consumers, businesses and government spend in an economy
Consumers spend in the economy through buying goods and services. [contine]
What were the negative impacts of the Global Financial Crisis?
Banks needed Government support to not bankrupt. Many banks bankrupted. Millions of people lost their job. The stock market plummet.
What factors contribute to confidence in the economy
House prices, unemployment rates, and inflation. Falling house prices decrease consumer confidence and weaken wealth accumulation
What is collateral security
Collateral security is something pledged as security for repayment of a loan. Mostly, it is property as the value of property is always rising.
Describe the imapct of Covid-19 on Australia’s economy
Increase unemployment rate, decrease in economic growth. However, it is not a recession as it is not negative economic growth
What is a ‘default’?
The inability to pay back debt in the form of loans or mortages
What are ‘sub prime’ mortages?
Mortages that are offered to borrowers with a low credit rating
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