Economics real yr 10

Macroeconomics relevance to businesses

Knowing the state of the economy helps plan strategy, future investments and estimate profits

Macroeconomics relevance to Citizens

Make informed decisions on employment, purchasing of major assets, investments, wealth creation and voting

Macroeconomics relevance to government

need to know the economic situation in order to create policy to manage the economy and achieve their macroeconomic objectives

GPD

Gross Domestic Product

the main measure of economic growth

Measures the total value of all goods and services produced in an economy each year

Measured in $ terms (usually USD)

Includes

• household spending (consumption)

• Business

• Government spending

Inclusions

• re building after a natural disaster

• weapons production

• unhealthy production (tobacco, junk food, etc.)

• production of pollutants such as coal

Exclusions

• volunteer work

• caring for family work

• house work

• leisure time

• environmental quality

• many important wellbeing factors

__________________________________________________________________________

• GDP is a measure of money - nothing else

Inflation

An increase in the level of prices of the goods and services that households buy

measured in the rate of changes of those prices

Consumer Price Index (CPI)

A quarterly measurement of the prices of around 100 000 commonly used goods and services that shows the changes in prices

Causes of inflation

Consumer Activity

• Rising demand

Increasing costs

• Chain reaction

Monetary policy

the manipulation of interest rates by the Reserve Bank of Australia (RBA) to influence the price levels and level of economic activity in the economy

Fiscal Policy

the manipulation of government spending and taxation to influence the level of economic activity in the economy

economic growth

an increase in the value of the goods and services produces by an economy over time. It is usually measured as a percentage change in real GDP

Cyclical unemployment

Occurs when the level of spending in the economy falls

• i.e a business is making fewer sales, so they cut employees

Boom/peak

Economic growth and general activity is above average

• High consumption expenditure

• high output/production

• low unemployment rates

• high levels of business profits

• confidence throughout the economy (Business and consumer)

• Above target inflation rates

why must economic growth be controlled

strain natural resources

increase inequality

Unemployment rate formula

Number of unemployed people ÷ labour force

Targets %

Sustainable economic growth range (GDP)

• 2-4%

RBA inflation target

• 2-3%

Unemployment

• 4-5%

Inflation rate (annual %) formula

CPI this year - CPI last year ÷ CPI last year

Real GDP

A measure of a country’s gross domestic product that has been adjusted for inflation

Structural unemployment

Occurs to changes in the way goods and services are produced, leading to a mismatch of skills

• eg. AI taking over

Major causes

• automation + outsourcing

Disproportionately affect lower paid and lower skilled jobs

Contraction

Due to the negatives caused by booms (inflation) the government puts in place contractionary economic policy to reduce the level of activity

Fiscal policy

• increasing taxes and/or spending rate

Monetary policy

• increasing official interest rate

decrease in spending, investment, profit and confidence

unemployment will rise and inflation will drop

Happens quickly

Seasonal unemployment

Results from the termination of jobs at the same time each year due to the regular change in season

• eg. someone working as a fruit picker, ski lift operator etc.

what is macroeconomics and why is it studied

Macroeconomics

• the study of the economy as a whole

• the total aggregate level of economic activity (production, expenditure and income)

Analysing data about the state of the economy means that we can identify problems and their courses and create strategies to deal with or prosper from them

Real wages

income expressed in terms of purchasing power as opposed to actual money received

in regards to inflation

Frictional unemployment

Unemployed between one job and another or entering the work force for the first time

small amount of frictional unemployment is important because it means that people are seeking opportunities and are able to change jobs if they wish

Trough

Economic activity ‘bottoms out’ sometimes bringing a recession

• low levels of consumption expenditure

• low levels of output/production

• low levels of inflation

• increase levels in savings

• low consumer and business confidence

• highest unemployment rates

The govt. will usually bring about expansionary policy to boost the levels of economic activity to start an upswing

why economic growth matters

it changes the overall quality of life of a person

• produces enough goods + services

• improves quality and variety of goods

• creates job opportunities

• raising living standards

Effects of high inflation

decreased purchasing power for consumers

increases in interest rates

worsening income inequality

Business cycle

the regular fluctuations in economic activity over time. It is categorised with distinct phases (peak, contraction, trough and expansion) and is measured in GDP unemployment

Dash line

• what the government would ideally like to happen based off fiscal and monetary policy

Trend line

• average growth over time

Why is GDP important

gives us a snapshot of the economy

• this years vs previous years

businesses

• who to hire and if they should hire or fire more people

consumers

• jobs to choose/move to, what to buy and from where

government

• adjusting taxes

Upswing/expansion

during a trough, the government will put expansionary policy in place to start an upswing

Fiscal policy

• decrease taxes and/or increasing spending

Monetary policy

• decreasing the official interest rate

Can take time but we know it is working when we see GDP and inflation start to increase back into its targets as well as a decrease in unemployment

Recession

a period of two successive quarters (six months) of negative GDP growth

how does unemployment rate relate to economic growth

a high unemployment rate = a decrease in economic growth and leads to an overall lower standard of living for the population

a low unemployment rate = an increase in economic growth and leads to an overall higher standard of living for the population

To whom, and why, is the unemployment rate important?

individuals: it allows people to make decisions about whether to take the risk of finding a different job

businesses: providing evidence for making hiring decisions

government: for issues such as taxation and welfare

who are not included in the unemployment rate

People who choose not to work, such as students, stay-at-home parents and sick or injured individuals.

Labour Force Survey

• the ABS conducts it

• a monthly survey that collects information about the employment status of Australians aged 15 and over

Measuring the unemployment rate

Unemployment rate = Number of unemployed people/Labour force

• The labour force = everyone in Australia who is either working or actively seeking work

• Employed = people working at least one hour per week (including self-employed)

• Unemployed = people actively seeking work but not currently working

key statistics idc

why low unemployment could be bad

Due to the changing nature of work, a growing proportion of the participants in the workforce are part-time employed or underemployed

high unemployment rate?

A high unemployment rate usually corresponds with a decrease in economic growth and leads to an overall lower standard of living for the population

frictional unemployment

Occurs when people are unemployed between finishing one job and starting another, or entering the workforce for the first

e.g. Someone who was working as a receptionist but is now seeking work as a lawyer

structual unemloyment

Occurs due to changes in the way goods and services are produced, leading to a mismatch of skills

e.g. Someone who was working in a factory but whose job was replaced by an automated technology

cyclical unemployment

Occurs when the level of spending in the economy falls

e.g. A business is making fewer sales so has to cut employees

seasonal unemployment

Results from the termination of jobs at the same time each year due to the regular change in seasons

e.g. Someone working as a fruit picker or a ski-lift operator

Which types of unemployment is good

• A small amount of frictional unemployment is important in an economy because it means people are seeking opportunities and are able to change jobs if they wish

• Cyclical and structural unemployment, however, are less desirable because they indicate jobs being lost to economic problems or a mismatch of skills

what is a major cause of structural unemployment

Automation and outsourcing are major causes of structural unemployment in Australia and tend to disproportionately affect lower-paid and lower-skilled jobs

natural rate of unemployment

• the rate at which there is only frictional and structural unemployment, and zero per cent cyclical unemployment

• an economy experiencing strong performance will likely be operating at this natural rate of unemployment

• it is at 4.5% in aus

Employed

people working at least one hour per week (including self-employed)

Unemployed

people actively seeking work but not currently working

Underemployment

when a person works fewer hours than they would ideally like or takes a job that does not reflect their actual training and skills

GDP

• the most important indicator of economic performance most widely used measure of economic growth

• aka Gross Domestic Product

• measures the total value of all goods and services produced in a country each year, it is measured in money ($)

• includes

  • Household spending (consumption)

  • Business investment

  • Government spending

Why is GDP important

• gives us a snapshot of the economy

• shows how much a country produces

• helps compare this year vs previous years

• measures economic growth

Why economic growth matters

• It produces enough goods & services for a growing population

• It improves quality and variety of products

• It creates jobs, opportunities, and raises living standards

fast growth

Very fast growth (above 4%) can:

• Strain natural resources

• Cause environmental damage

• Increase inequality

• Growth must be balanced

sustainable growth

• Ideal growth = 2 – 4% per year

• Within these parameters, the needs of Australians today are satisfied without creating significant problems for future generations

What is GDP per capita

GDP ($bn) ÷ population (number of people in a country)

• It shows the average income/output per person

• It gives a fairer comparison between countries with different population sizes

• It helps measure living standards and wellbeing.

what does GDP include

• Rebuilding after a natural disaster

• Weapons production

• Unhealthy products (tobacco, junk food)

• Production of pollutants such as coal

what does GDP not include

• Volunteer work

• Caring for family members

• Housework

• Leisure time

• Environmental quality

• Many important wellbeing factors

inflation

• an increase in the level of prices of the goods and services that households buy

• measured as the rate of change of those prices

• The RBA has an inflation target of between 2% and 3% per year, on average

prices rise?

this is a sign of a healthy economy because it means there are a lot of transactions occurring and we are adding value to what we produce and consume

low inflation?

• Even within a low inflation target, prices increase significantly over time.

• For example, a basket of goods that cost $100 in 1998 would have cost exactly double at $200 in 2023.

wages increase?

• People’s incomes have also increased

what do economists need to take in account when comparing performance over time with inflation

economists refer to real wages and real GDP to take inflation into account when comparing performance over time

idk remember

As long as wages are rising faster than prices, people’s living standards are increasing on average

how is inflation calculated

• calculated by the ABS, using the consumer price index (CPI)

• a quarterly measurement of the prices of around 100, 000 commonly used goods and services that shows the overall changes in prices

• These goods and services are weighted by their significance to household spending

CPI

• is an average.

• Some items, such as electronics and clothing, have seen large decreases in prices over time, while others, such as education, have increased significantly.

Causes of inflation

• Consumer activity: As people increase their demand for goods and services, prices increase. If demand increases across the whole economy, inflation will occur

• Increasing costs: if the costs of land, labour or capital increase, these costs are passed on in the form of higher prices for the things those resources go to producing.

Real wages

income expressed in terms of purchasing power as opposed to actual money received

Real GDP

a measure of a country’s gross domestic product that has been adjusted for inflation

how does the econmoney affect workers and businesses

• Workers look for jobs and promotions

• Businesses look at risks and trends before making decisions

what are the three main indicators according to the reserve bank of aus

• Economic growth – is the economy producing more goods & services?

• Unemployment – how many people can’t find work?

• Inflation – are prices rising too quickly

quantitative indicators

• measure the economy using data and numbers

• that they can be counted, measured, and expressed in numbers

Why measure the economy?

• Helps make predictions

• Helps governments, businesses & people make better decisions

• Reduces uncertainty

open economy

• trades with other countries

• Both global and local factors influence the economy

business cycle

• is the regular fluctuations in economic activity over time

• It is categorised with distinct phases and is measured in real GDP

• depicts the rise and fall in output (production of goods and services), over time

example 1 of process and product innovation

Coca-Cola

• The ‘Share a Coke’ campaign personalised the brand by printing individual names on bottles

• This strategy created a personal connection with consumers, encouraging them to find and share bottles with their names or the names of friends and family

• It significantly boosted sales and social media engagement.

example 2 of process and product innovation

Apple Inc

• Known for its innovative marketing, Apple’s ‘Think Different’ campaign is a classic example

• This campaign celebrated creativity and innovation, aligning the brand with iconic figures like Albert Einstein and Martin Luther King Jr

• It effectively positioned Apple as a leader in technology and innovation

why process innovation

• When economic conditions are on the decline businesses tend to look to process or systems innovation

• It is less costly, and often comes with decreasing staff numbers or merging resources to save on costs

• It is often a combination of technology and process innovation that makes the biggest difference to a business

process innovation e.g.

A small investment in some tablets and software can streamline the way businesses keep track of their inventory or communicate with customers, cutting down on staff costs and saving the businesses money

research and development

Many businesses invest in technology to improve their productivity

Small businesses tend to struggle in this area, as there are often very high costs involved in researching product improvements

when and why R&D

• when economic conditions improve, businesses tend to allocate more money to R&D, looking to take advantage of not only having more money available but also increased consumer confidence to try new products and spend money

• the government often supports ideas in it because of the general benefits it provides to the economy

innovation

organisations introducing new or improved processes, services or products to effect positive change within the business

why product innovation

• innovation in new products can be risky, but the potential reward for developing an industry-changing idea can be enormous

• when economic conditions change, businesses tend to look to innovate and adapt in order to maintain or increase their market share

product innovation e.g.

• Nokia was the victim of the success of Apple and Samsung, companies that are now valued in the hundreds of billions of dollars

when product innovation

• when the economy is strong, businesses tend to have surplus funds available to invest in new products or services

• if these ideas fail, the harm to the business can be minimised because there are still traditional sources of revenue to fall back on