The Economic and Business Environment

Please note that this should be used as outline and not as an definite answer. These are based from the Jacaranda New Concepts in textbook

What 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)

1. monitoring the financial industry
2. monitoring the provision of financial servies such as investment advice
3. providing consumer protection in financial services, including shares, managed funds, superannuation, insurance, cred and despoit itaking
4. 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?

1. Excessive risk-taking
2. Increased borrowing by banks and investors
3. 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