Economics

AOE 1 2 3 4

The law of demand

The law of demand is an inverse relationship that states that as prices of a good increases, the demand for it decreases,

Economics

the study of choices and how society uses its limited resources to improve living standards

Microeconomics

branch of economics that examines the activities of and decision making by individual firms, households and industries

Macroeconomics

branch of economics that focuses with the operation of the economy as a whole,

Relative Scarcity

when a nation has limited resources of goods and services compared to peoples wants and needs which are unlimited

Opportunity costs

the potential benefits that are lost when an alternative good is taken instead.

Types of resources

Natural Capital Human Labour Entrepreneur

Primary stage of production

extraction of natural resources

Secondary stage of production

processing of resources into goods

Tertiary stage of production

service or selling of good

Economic System

The structure society uses to organize the production, distribution, and consumption of goods and services

market

a place or situation where buyers and sellers meet to exchange goods and services

demand

the amount a good or service a consumer will buy at a range of prices

Ceteris peribus

if all else remains the same

expansion of demand curve

downward movement of the demand curve

contraction of the demand curve

leads to upwards movement of the demand curve

taste

where goods and services are more or less favorable

disposable income

the amount of money a consumer has to use

price and aviabilty of complements

products that are often consumed together and increase in value when the demand for the other increases

substitute goods

products that consumers can use in place of each other to satisfy the same needs

population or demographic change

population or demographic change

consumer confidence

the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation.

The law of supply

as price for a good increases the quantity of the product increases

supply

the ability and willingness to provide a good or service at each given price level.

economic Factors that alter supply

cost of production, technology improvements, productivity growth, climatic conditions

Supply curve shifts to the right

quantity supplied increases at all prices

supply shifts to the left

quantity supplied decreases at all prices

demand curve shifts to the left

decrease of quantity demanded ta all prices

demand curve shift to the right

increase of quantity of demanded at all prices

cost of production

amounts spent on the resources to make good or service

technology

new techniques in production

market equilibrium

point where quantity demanded equals quantity supplied.

Surplus

a price above equilibrium point where the quantity supplied is greater than the quantity demanded by consumers

Shortage

occurs at price below equilibrium where quantity supplied by producers is less than the quantity demanded by consumers.

Natural resources

resources from nature and used by humans

Human resources

the people who provide labour skills and knowledge

capital resources

man made goods used to produce other goods and services

entrepreneurial resources

The ideas and risk-taking involved in creating and managing a business.

GDP

economic indicator that measures the total value of goods and services produced within a country's borders during a specific period, usually a year

Inflation

a general increase in the price of goods and services within an economy over a specific period

Unemployment

the state of being jobless, while actively seeking employment and being available to work

Boom/ peak

a period of sustained, rapid growth in a country's economy, characterized by low unemployment, high consumer spending, and rising prices, rising inflation

Recession/ trough

a significant decline in economic activity spread across the economy,characterised by high unemployment and low inflation

expansion

an upward trend in the business cycle, characterized by an increase in production and employment

contraction

a sustained decrease in economic activity,

Circular flow model

illustrates how money, goods, and services circulate within an economy between households, firms, and the government.

Two sector economy model

households purchase goods, businesses pay for wages and salaries

Household & Business Sectors

the household sector depends on business sector for employment and wages, as well as goods and services, business sector depends on households for labour to produce goods and services as well as the purchase of them.

3 sector economy model

Financial intermediaries receive deposits and then use this money to lend out to others who need to borrow money, investments can then be given out to businesses, provides credit to households/loans

financial sector

The financial sector is made up of several financial intermediaries. These include banks and other similar organisations, such as superannuation funds.

Credit

the ability of the consumer to acquire goods or services prior to payment with the faith that the payment will be made in the future

4 sector economy model

3 sector economy model plus households and businesses pay taxes to government, in return households can get services and government can spend on businesses.

Government role in economy

injecting and extracting funds from the circular flow of income

5 sector economy model

4 sector economy model plus overseas,

import payments and export incomes from consumers to businesses.

Imports

Products coming into Australia, Money leaving Australian economy

exports

Products being sold from Australian companies overseas, Money entering Australian economy

injections

Some transactions put money into the economy – that is, the money is being utilised elsewhere in the economy.

leakages

Some transactions take money out of the economy. That is, the money is not being utilised elsewhere in the economy.

Unemployment

people are willing and able to work, but unable to find employment

Negative GDP

Consumers are spending less

Businesses are making and selling fewer things

Fewer jobs and lower wages

Positive GDP

Consumers are spending more. businesses are expanding, making and selling more goods and services, more workers

Economic growth

when a nation increases its volume goods and services in a given period of time

Causes of Inflation

the total number of goods and services produced by an economy,

Negative impacts of inflation

reduced purchasing power, increased cost of living

Montary Policy

Monetary policy in Australia is a tool used by the Reserve Bank of Australia to influence the economy, primarily by controlling interest rates to achieve price stability and full employment.

Fiscal Policy

the government's use of spending and taxation to influence the economy and key aspects such as aggregate demand employment and economic growth

Aggregate Demand

Aggregate demand is the total expenditure on goods and services.

Government Budget expenses

The amount of spending  government does on public goods and services to improve the quality of living for the country and citizens, an example is healthcare and education. Education spending can include schools and teacher salaries

Aim of Budget/ Fiscal policy

The aim of the budgetary policy is to increase the wellbeing of australians

Budget revenues

various types of government outlays on public services such as defence and health

Sources of government revenue

Sources of gov revenue include

direct taxes, example income tax- indirect tax, ex GST,

Direct taxes

levies received by individuals and companies, such as income tax

indirect taxes

levies placed on goods and services and added onto price of items, example canteen food

Non tax revenue

sources of revenue other than taxation such as profits from fines, government businesses

Progressive tax

a form of taxation in which the amount of money paid out is proportional to income, example income tax

recessive tax

a form of taxation in which the amount of tax paid out decrease as person’s income rises, ex GST

Proportional tax

a form of taxation in which the proportion of tax paid out is constant amongst all taxpayers, example company tax rates

company tax rates

Large business 30%, small businesses 25%

Types of government expenses

Types of government expenses include current and capital expenditure, and transfer payments

Contractionary Budgets

When the government seeks to slow economic growth by reducing the size of a budget deficit, or by increasing the size of a budget surplus. It would be used when there is a threat of inflationary pressures in the economy.

Expansionary Budget

When the government seeks to increase economic growth by increasing budget decreasing surplus. It would be used when there is a slowdown in aggregate demand and economic activity

Budget deficits

When the government is injecting more into the economy than it is taking out. This will tend to expand economic activity.

Budget Surplus

When the government takes more from the economy than injecting it. This will tend to contract economic activity particularly in the shorter term.

Reserve banks inflation goals

between 2-3% a year

Objective of monetary policy

to stimulate or dampen the economy activity if needed, helping to achieve a low and steady inflation rate

If economy is expanding too quickly

Commercial banks will raise interest rates making it more expensive to borrow money and more attractive to save money, reducing economic activity

Role of Reserve Bank Board

economic prosperity and welfare, full employment, stability of the currency

Conventional monetary policy

The traditional way when RBA manipulates the interest rates, directly enabling RBA to change cash rate.

The 3 main financial regulation organisations

RBA, APRA the australian prudential regulation authority , ASIC, the australian securities and investments commission

The RBA controls..

How much money is in the economy ( fiscal), cost of that money via interest rates ( montary)

Increases in interest rates lead to

less spending, less borrowing, more saving, resulting in decreased demand in economy and reduced inflation

decreases in interest rates leads to

more spending, more borrowing, less saving, increased production in economy, increased employment and higher inflation