Economic Activity

Unit 2 AOS 1

Living Standards

refers to one’s quality of life

Material Living Standards

refers to access to consume goods and services

Non-Material Living Standards

refers to one’s quality of life

Economic Activity

refers to the process where resources are transformed into goods and services

Non Economic Activity

refers to those which are not sold for money, such as volunteering

5 Sector Circular Flow Model

Flow 1: Resources

Flow 2: Income

Flow 3: Spending on Australian Production

Flow 4: Finished Goods and Services

Business Cycle - Expansion

Rising GDP, falling unemployment, rising inflation

Business Cycle - Peak

GDP at a maximum, unemployment at a minimum, inflation at a maximum

Business Cycle - Contraction

falling GDP, rising unemployment, falling inflation

Business Cycle - Trough

GDP at a minimum, unemployment at a maximum, inflation at a minimum

Economic Indicators

Lagging Indicators

Coincident Indicators

Leading Indicators

Lagging Indicators

are measure of the economy that only tell the level of activity that occured some time ago

• Unemployment Rate

• Inflation Rate

Coincident Indicators

are measures of the economy that move very closely with actual changes in the level of economic activity

• Share Prices

• Monthly retail sales

• New Car registrations

Leading Indicators

are measures that can help to predict where the economy may be heading soon

• Consumer Confidence

• Business Confidence

Gross Domestic Product

the total production of goods and services in the economy

How GDP is measured

The average of Production, Income and Expenditure approaches

Real GDP

is a measure of the total value of all goods and services produced in an economy adjusted for inflation

Labour Force

people who are working or actively seeking work

Not in the labour force

people who are not in a paid job and who are not looking for work. eg. students, retired or volunteers

Employed

includes people who are in a paid job

Unemployed

occurs when a person 15+ does not have a paid job

The Unemployment Rate (%)

= Number of people unemployed x 100/ Total number of people in the labour force

The Participation Rate (%)

= Total number of people in the labour x 100/ Total number of people 15 or over in the population

Underemployment Rate

= Number of Unemployed + Underemployed/ Number of people in the labour force x 100

Under-utilisation Rate (%)

Unemployement Rate (%) + Underemployment Rate (%)

Potential Benefits of Economic Growth

• New employment opportunities

• Increase incomes and material standards

• Reduces government tax

Potential Costs of Economic Growth

• Possible rise in inflation rate

• Environment Costs: CO2 Emissions, climate change

• Reduced leisure time, increased stress

Aggregate Demand

refers to the total level of spending in the economy

Aggregate Demand Equation

AD = C + I + G + (X-M)

C - Consumption

I - Investment

G - Government

X - Exports

M - Imports

Aggregate Supply

represents the total volume of goods and services that all suppliers have produced and supplied over a period of time

Macroeconomic supply factors

influence the willingness and/or ability of producers to offer goods and services for sale and in turn the level of aggregate supply

Factors increasing economic growth (Demand)

• Higher disposable income

• Higher discretionary income

• lower interest rates

• stronger consumer confidence

Factors increasing economic growth (Supply)

• More factors of production

• Better quality production

• Lower costs of production

Macroeconomic Demand Factors

Disposable Income, Discretioanry Income, Interest Rates, Consumer Confidence, Business Confidence, Exchange Rates, Rates of economic growth overseas

Disposable Income

the money u received from working after tax

Discretionary Income

a measure of how much money households have left over after buying essentials

Interest Rates

the cost of credit or reward of saving

Consumer Confidence

the degree of optimism of households about the future incomes and employment prospects

Business Confidence

the degree of optimism of firms about future profits

Exchange Rates

the value of one currency in terms of another curency

Rates of economic growth overseas

the percentage change in the volume of goods and services produced in a nation from one measurable time period to another