Macroeconomics and Economic Activity

Flashcards covering key definitions and concepts related to economic activity, living standards, the business cycle, and measures of economic health from the provided lecture transcript.

Economic Activity

The process of making or selling goods and services using scarce resources in exchange for money to earn an income and make a living.

Non-Economic Activities

Activities not sold for money but performed for emotional reasons, concern for others, or on a volunteer basis, such as mowing a lawn or donating at Redcross.

Gross Domestic Product (GDP)

A measure of the total value of a nations output of finished goods and services resulting from all types of economic activities, measured every $3$ months or yearly.

Relative Scarcity

A condition where available resources to satisfy wants are relatively limited, forcing decisions between alternative uses for natural, labour, and capital resources.

Material Living Standards

The level of wellbeing affected by the annual average level of income and consumption per person per year.

Non-Material Living Standards

Refers to the quality of life, reflecting factors such as happiness, life expectancy, mental and physical health, and literacy rates.

Aggregate Demand (AD)

The total spending on Australian-produced goods and services, represented by the formula $AD = C + I + G + (X - M)$, where $C$ is consumption, $I$ is investment, $G$ is government spending, and $X - M$ is net exports.

Aggregate Supply (AS)

The economy's productive capacity, signifying the total volume of goods and services producers can make available and the potential output over a period of time.

Disposable Income

The amount of money households have available to spend after paying income tax.

Consumer Confidence Index

A leading indicator that measures how optimistic or pessimistic households are about future jobs, income, and spending.

Business Confidence

A leading indicator measuring how optimistic businesses are about future sales and profits, which influences investment and hiring decisions.

Leakages

Money leaving the circular flow that reduces spending and aggregate demand, specifically consisting of savings ($S$), taxes ($T$), and imports ($M$).

Injections

Money entering the circular flow that increases spending and aggregate demand, specifically consisting of business investment ($I$), government spending ($G$), and export income ($X$).

Lagging Indicators

Economic statistics that measure past activity and tell us what has already happened, such as GDP, the unemployment rate, and inflation rate.

Coincident Indicators

Economic statistics that measure current economic activity and move at the same time as changes in the economy, such as monthly retail sales and new car registrations.

Leading Indicators

Economic statistics used to predict future economic activity that often change before the economy itself changes.

Business Cycle

The cyclical or wave-like rise and fall in the rate of economic activity ($GDP$ growth) over time, consisting of four phases: peak (boom), slowdown, trough (recession), and recovery.

Sustainable Economic Growth

A goal of domestic economic stability where GDP grows steadily at a rate of around $3\%$ per year.

Full Employment

A goal of domestic economic stability where most people who want work have jobs, typically targeting an unemployment rate of around $4-4.5\%$.

Low Inflation

A goal of domestic economic stability where prices increase slowly, ideally around $2-3\%$ per year to maintain purchasing power.

Recession

A technical condition occurring when GDP falls for two or more consecutive quarters ($6$ months).

Trough

The lowest point of the business cycle where economic activity and GDP growth are at their slowest, causing high unemployment and possible deflation.

Peak (Boom)

The phase in the business cycle when GDP is growing at its fastest rate, often characterized by low unemployment and high inflation.

Domestic Economic Stability

The ideal point between the peak and trough where the economy grows steadily without excessive inflation or unemployment.