GDP

GDP

• Stands for Gross Domestic Product

• Measures the overall economic output of a country

• Defined as the total monetary value of all the goods and services produced by a country over a specific time period.

GDP per capita

• capita = per person

• offers an average economic output per person providing a perspective on individual income or prosperity

Why is GDP important?

• An increase of GDP means that a country’s economy (financial/monetary movement) is growing

• helps to gauge a country growth/economic health

Why is economic growth important?

• Australian Bureau of Statistics releases figures every quarter (3 months)

• economists hope to see growth exceed 2%

• Economic growth is important so people can spend more on goods/services which improve living standards

• when GDP is low, economy is low and currency is not strong, leading to issues in trade and inflation

• generates jobs and wages, and increasing the variety of good and services available.

Issues in the Economy

Limits of GDP as a measure

• GDP cannot accurately completely assess the performance

• producing more goods and services can have undesirable social/economic affects

Recession

• Economic growth (GDP figures) fall for two quarters (six months)

• Australia has had 5 recessions since 1960 (1961, 1974-75, 1982-83, 1991-92, 2020)

Depression

• A severe recession lasting for over two years (8 quarters)

• leads to high unemployment rates

• low consumer confidence

Inflation

Inflation

• An increase in the general level of prices paid for goods or services over a certain period

• Price of goods and services increase over time

• Wages also increase over time

• RBA (Reserve Bank of Australia) and the Treasury set a target inflation rate of 2-3%

• Anything lower is ‘good enough’

• When higher than the target 2-3%, wage increase cannot keep up goods increase

Reasons for inflation

• Stronger demand for goods and services in the economy, when there is not necessarily the adequate supply (Supply and Demand). Increased demand may be due to:

  • consumers feel confident about spending and income

  • businesses expanding their ventures, upgrading business operation

  • increased demand form overseas for exports

  • low interest rates, causing consumers to purchase more

  • lower taxing rates and increased government spending

• Additionally, new, extra costs for the business may be passed onto consumers. These can lead to increased costs for prices (inflation). extra costs may be due to:

  • higher taxes and interest rates on businesses

  • businesses struggling to produce nationally, and being forced to export raw materials from overseas

  • increase in oil/energy rates

Winners and Losers of Inflation

Inflation winners

• High income earners whose wages increase at the same rate as inflation, able to keep up with the increased costs

• People who are borrowing from the banks, as they borrow at a fixed interest rate which may be significantly lower than an inflated ones

• People who import goods can make their goods cheaper than others, creating potential for more revenue

Inflation losers

• low to middle class income earners whose wages do not increase as fast as inflation

• people who put money in the bank at a low interest rate, rather than putting it in at a high interest rate and receiving more money going forward

• People who export goods, as they will be more expensive to maintain and sell and demand will fall

Measuring Inflation

• The ABS measures inflation by using the Consumer Prince Index (CPI)

• CPI measures price change of a ‘typical basket of goods purchased by average Australians’

• Includes goods such as clothing, food, and furniture

• Includes services such as health, insurance and education

• change in price of goods/services between quarters is the inflation rate

Unemployment

Unemployment Rate

• ABS considers anyone who does not work for at least one hour a week to be ‘unemployed’

• Labour force = unemployed + employed individuals over 15 years

• Certain groups are excluded (imprisoned people, full time students', etc.)

• Unemployment rate is calculated as the percentage of the total labour force that is unemployed,

• provides a key indicator of the health of the economic performance of the country

• High unemployment leads to:

  • less government revenue (fewer people can be taxed)

  • government spends more on social welfare programs

  • broader social effects such as reduced living standards, workforce sill loss, potential psychological effects (depression, anxiety) on the unemployed.

Causes of Unemployment

• When production/GDP is weak, business may cut back/not hire staff to save money

• Increased competition from overseas markets where items can eb produced cheaper and easier

• moving operations to other countries/businesses shutting down

• Labour saving technology can be introduced in operations

Fourth Industrial Revolution/Work Futures

• in certain industries, robots/automated machines have become more capable than humans

• In LEGO factories (Denmark), autonomous robots are used to sort collect and pack bricks - no humans work there

• Robots can work with greater precision and speed, and typically with fewer errors

• they are better than humans at adapting new practices and environments

• reduction in cost/production

• overall, robots can make goods cheaper, easier, and better

• approx. 800 million jobs are predicted to be lost to robots by 2030

• technologies such as AI, robotics, deep learning, and the IoT result in jobs being redesigned

• the ‘jobs of tomorrow’ (super jobs) will require irreplaceable traits of creativity and communication from humans, but also incorporate cutting edge technology to meet future demands

• there will be fewer administrative tasks, fewer repetitive/manual tasks, and more jobs working with machines

Policies (Macroeconomic + Microeconomic Policies)

• government of any country is constantly making economic policy decisions

• government revenue from taxes are used to build and upgrade services such as education and healthcare

Macroeconomic Policies

• policies that target changes to affect the entirety of the nation

• e.g.; budgetary policies and monetary policies

Fiscal Policy

• policy that affects the budget

• the fiscal policy is the governments management and adjustments in expenditure and tax rates to support economic growth through the federal budget

• the budget is handed down by the government each year (usually in May)

• outlines how the governments revenue (from taxes) is being put towards government expenditures (such as services)

• budget affects lifestyle and welfare

• three main trypes of budgets balanced budget, deficit budget, surplus budget

• Surplus budget

  • government recieved more than spent on expenditures

  • tends to decrease consumer/buisness demand

  • restricts production/employment

  • this decrease consumer