2.3 - Economic Activity

Economic activity

actions of economic agents in generating the production of G&S, employment and incomes

Economic agents

individuals, firms and government

Real GDP

GDP adjusted for inflation or deflation effects

Chain Volume GDP

GDP after removing price changes impact

Lagging indicators

stats reflecting past economic activity levels

Lagging indicators eg

GDP, unemployment rate, infaltion

Coincident indicators

Indicators showing current economic activity levels

Coincident indicators eg

Retail sales

Retail sales meaning

Retail sales measure consumer spending on goods, indicating economic activity and consumer confidence.

Leading indicators

indicators predicting future economic activity trends

Leading indicators eg

House approvals

3 Domestic Economic Goals

• GDP: Strong and sustainable economic growth

• Low and stable inflation

• Employment

Target rate for inflation

2-3%

Target rate for Economic Growth

3-3.5%

Target for unemployment rate

4-5%

If value of AUD has fallen our Australian imports would

increase

What does GDP not account for?

• Refunds (STAR THIS)

• Labour DIY —> because it takes a actual labourer that gets paid to not get paid

By eliminating inflation or _____ effects, real GDP allows for more accurate comparisons of economic performance across different periods.

deflation

What are long-term trends in economic indicators?

General trends lasting 10–20 years, showing overall economic growth, decline, or stability.

What are short- to medium-term cycles in economic indicators?

Fluctuations lasting 1–3 years, often reflecting business cycles.

What are seasonal patterns in economic indicators?

Recurring changes that happen at the same time each year, like holiday sales spikes.

Why is identifying long-term trends important?

It helps economists understand overall economic direction and plan for future growth or challenges.

What effect does deflation have on purchasing power?

Deflation increases purchasing power because as prices fall, the same amount of money can buy more goods and services.

Give an example of how deflation increases purchasing power.

If the price of groceries drops, you can buy more food with the same amount of money.

What is one negative effect of deflation on consumers?

Consumers may delay purchases, expecting prices to drop further.

How does deflation impact businesses?

Businesses earn lower revenues, which can lead to job losses and lower wages.

Why does deflation make debt more expensive?

Debt becomes more expensive because loan repayments stay the same while incomes may decline

Deflation

A decrease in the general price level of goods and services, increasing purchasing power over time.