economics

hLearning Objective Success Criteria • Understand what GDP measures and why it matters • Distinguish between nominal and real GDP • Explain how economic growth is calculated and measured Learning Objective • Define GDP in their own words • Explain why real GDP is more useful than nominal GDP • Calculate economic growth rate using GDP figures • Give examples of what contributes to GDP • Identify limitations of using GDP as a measure Concept Development The concept and measurement of economic growth Economic growth is defined as an increase in the productive capacity of the economy. In other words it is the increase in Gross Domestic Product of a country over time. It is measured by calculating the change in the value of production over time. As a formula it is the change in economic growth from one year to another, divided by the original GDP. Multiplied by 100. An example is given on the next slide. Concept Development How do we measure the size of the macroeconomy? The most important economic statistic is gross domestic product or GDP. This measures the total value of production or income in the economy and is calculated on a quarterly and annual basis. The ABS defines GDP as the ‘total market value of goods and services produced in Australia after deducting the cost of goods and services used up in the process of production’. Gross domestic product (GDP) 5 Skill Development This means that GDP is the total value of all final goods and services produced during a particular period, which is not the same as the total value of all goods and services. For example a farmer grows wheat and sells it to a flour mill for $10,000. The mill produces flour and sells it to the grocery chain for $20,000. The supermarket sells the flour to consumers for $30,000. What do we count in GDP? Only the final value – the $30,000. This avoids the problem of ‘double counting’. Gross domestic product (GDP) 6 Concept Development The simplest way to measure GDP is the expenditure method. This sums all spending across the four sectors in the circular flow model: • Households – consumption • Firms – investment • Government – government purchases • Overseas – net exports Gross domestic product (GDP) 7 Concept Development Measuring the value of production or income in the economy can now be expressed by the following equation: GDP = C + I + G + (X - M) Where C = consumption expenditure I = investment expenditure G = government expenditure on goods & services X = spending by foreigners on Australian exports M = spending on imports from overseas by Australians Gross domestic product (GDP) 8 Concept Development Consumption expenditure is the market value of all goods and services purchased by households, including durable products (such as cars and home computers) & non-durable goods (such as food, clothing & petrol). Consumption is by far the largest category of GDP – comprising around 55%. Consumption spending is relatively stable over time, since a large proportion is on essential goods & services such as food, rent & health care. Consumption 9 Concept Development Aggregate consumption spending includes household spending on a day-to-day items such as food and clothing. Determinants of aggregate consumption: a) Disposable income b) Household wealth c) Consumer expectations d) Government policies Components of Consumption Concept Development Investment expenditure refers to purchases of capital goods such as machinery and equipment, mainly by businesses, but it also includes new construction. The three main categories of investment are: • Business investment – spending by firms on equipment, buildings and construction • Residential investment – spending by households on new houses & apartments • Inventories – changes to a firm’s inventories (stocks of unsold goods). Investment 11 Concept Development Aggregate investment is the expenditure on producer or capital goods. Determinants of aggregate consumption: a) Rate of interest b) Real rate of interest c) Business expectations d) Government policies Components of Investment Concept Development There are two main categories of government expenditure • Current expenditure – government spending on goods & services including salaries of government employees • Capital expenditure – spending by the government on infrastructure and other capital goods such as new roads, schools and hospitals. Note: government spending on welfare such as unemployment benefits & pensions are not counted in GDP because no new good or service is created. These are known as ‘transfer payments’. Government purchases 13 Concept Development Aggregate government expenditure is expenditure by the government-ongovernment programs in health, education, social welfare and defence. Determinants of aggregate government expenditure: State of the economy (economic fluctuations) Components of Government Concept Development Exports of goods and services such as iron ore, coal, natural gas, education and spending by tourists from overseas are included in Australia’s GDP. Spending on imports of goods and services such as motor vehicles, petrol, computers and Australian tourists travelling overseas are excluded from Australia’s GDP. Net exports 15 Concept Development Net Imports is the difference between the flow of money into the Australian economy (Exports) and the flow of money out of the Australian economy (Imports) Determinants of net exports: a) The exchange rate b) The terms of trade Components of Net Exports Concept Development Aggregate expenditure is the total amount of spending on final goods and services produced by the four main sectors of the economy; - Personal expenditure/consumption (C) -Private Investment (I) -Government Spending (G) -Net Exports (X-M) Therefore, AE= C + I + G + (X-M) Aggregate Expenditure Relevance Recap - the spending groups 18 Relevance Factors influencing each element 19 Concept Development The concept and measurement of economic growth Concept Development The concept and measurement of economic growth Year GDP GDP Growth 1 (eg 2019) $11.5 billion 6.96% 2 (eg 2020) $12.7 billion 3 (eg 2021) $14.5 billion 4 (eg 2022) $15.5 billion 5 (eg 2023) $14.3 billion Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita We usually use real GDP (Gross Domestic Product) or rGDP when calculating economic growth. Real GDP is the GDP of a nation after taking away the effects of inflation. The opposite of this is Nominal GDP which is the raw GDP value, without taking away the effects of inflation. Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Highest grossing films (nominal) Gone with the Wind, released in 1939 grossed about $390 million at the time of release. Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Highest grossing films (real) Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Concept Development The concept and measurement of economic growth The desirable rate of economic growth is about 3 to 4% per year. If growth is slower – the economy may not be able to fully employ its resources, especially labour. Unemployment will increase higher than desirable. If growth is too fast – inflation will build as demand for goods and services grows faster than the capacity of the economy to provide them. Check for understanding 1. What is the definition of economic growth? 2. How is economic growth measured? 3. What is the difference between real GDP and nominal GDP? 4. Why is a desirable rate of economic growth around 3 to 4% per year? Check for understanding What is the definition of economic growth? Answer: Economic growth is defined as an increase in the productive capacity of the economy. How is economic growth measured? Answer: Economic growth is measured by calculating the change in the value of production over time, using the formula: the change in economic growth from one year to another, divided by the original GDP, multiplied by 100. What is the difference between real GDP and nominal GDP? Answer: Real GDP is the GDP of a nation after removing the effects of inflation, whereas nominal GDP is the raw GDP value without accounting for inflation. Why is a desirable rate of economic growth around 3 to 4% per year? Answer: A desirable rate of economic growth is about 3 to 4% per year because slower growth may lead to higher unemployment, and faster growth may result in inflation due to demand for goods and services outpacing the economy's capacity to provide them. Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Real GDP per capita refers to the GDP of a country per person (or per capita). It is an important distinction to make as the GDP of a country will increase due to population growth. However, the GDP per capita may not be increasing! From 1980 to now, Australia’s population has grown from 14.6 million people to about 26.3 million people. Population growth is about 500,000 people per year. Our Real GDP is growing, but it needs to be “shared” by more people. Our real GDP is divided by the population to determine real GDP per capita. Concept Development The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Real GDP per capita is an important concept as it is a measure of a country’s living standards. It reflects the average value of income per person. As long as real GDP per capita increases over time, then the average living standards will also increase over time. Living standards increase due our income being able to purchase more material goods and services (cars, houses, clothes, technology etc) Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita What does real GDP per capita refer to? • A) The total GDP of a country without adjusting for inflation • B) The GDP of a country per person, adjusted for inflation • C) The total GDP of a country divided by its total area • D) The GDP growth rate per year Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Why is it important to distinguish between GDP and real GDP per capita? • A) Because GDP per capita may not increase even if total GDP increases due to population growth • B) Because GDP per capita always increases with total GDP • C) Because GDP per capita is not affected by population growth • D) Because GDP per capita measures the total economic output Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita How is real GDP per capita related to living standards? • A) It reflects the total income of the country • B) It shows the average value of income per person, indicating living standards • C) It measures the total number of goods and services produced • D) It shows the population growth rate of a country Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita What does real GDP per capita refer to? • A) The total GDP of a country without adjusting for inflation • B) The GDP of a country per person, adjusted for inflation • C) The total GDP of a country divided by its total area • D) The GDP growth rate per year Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita Why is it important to distinguish between GDP and real GDP per capita? • A) Because GDP per capita may not increase even if total GDP increases due to population growth • B) Because GDP per capita always increases with total GDP • C) Because GDP per capita is not affected by population growth • D) Because GDP per capita measures the total economic output Check for understanding The distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita How is real GDP per capita related to living standards? • A) It reflects the total income of the country • B) It shows the average value of income per person, indicating living standards • C) It measures the total number of goods and services produced • D) It shows the population growth rate of a country • Economic growth · the concept and measurement of economic growth · the distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita · GDP as a measure of economic welfare · the demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) · the determinants of economic growth · the costs and benefits of economic growth · the trends in economic growth in Australia over the last five years Learning Objective Independent Practice Research Each group will research the following data for their chosen country: •Current population •Real GDP for the latest year available •Real GDP per capita for the latest year available •Population growth rate over the past decade •Real GDP growth rate over the past decade •Useful sources for data include the World Bank, IMF, and national statistical offices. Analysis Each group will calculate: •The real GDP per capita for the latest year if only real GDP and population data are available. •The trend in real GDP per capita over the past decade (whether it has been increasing or decreasing). Lesson Closure.

Inflation · the concept, and measurement, of inflation · the distinction between headline and underlying inflation · the causes and types of inflation, including demand pull and cost push · the effects of inflation · the impact of events on the trends in inflation in Australia over the last five years Learning Objective • Students will be able to explain the concept of inflation • Students will be able to calculate and measure inflation from given data • Students will be able to explain the difference between headline and underlying inflation Success Criteria Concept Development The concept, and measurement, of inflation Inflation is one of the most common terms in economics. It describes price increases that occur in goods and services over time. Inflation is the persistent and appreciable rise in the general price levels of prices of goods and services. Concept Development The concept, and measurement, of inflation A small rate of inflation in developed countries is normal. In the 30 years before COVID-19, inflation in Australia averaged just under 3% per annum (year) The opposite of inflation is deflation – where prices of goods and services fall. Concept Development The concept, and measurement, of inflation Inflation is an important concept in economics , as the rate of inflation effects many things such as • Purchasing Power • Business costs • Wages and salaries • Interest Rates • Government Policies • Savings and investment • Income Equality Concept Development Concept Development The concept, and measurement, of inflation Inflation is measured using the Consumer Price Index (CPI). The CPI measures changes in the prices of a basket of goods and services bought by Australian households from one month to another. The CPI basket contains things such as steak, vehicles, dental checkups, restaurant prices. About 900,000 separate items are recorded. Concept Development The concept, and measurement, of inflation Items in the CPI basket don’t have equal importance! Which of the following is more important? • 10% increase in fuel prices • 10% increase in rental cars The CPI applies weightings to each item to ensure that the most important items and the items that contribute a higher proportion of a households expenditure are weighted higher. Concept Development Check for understanding What is inflation? a) A decrease in the general price levels of goods and services. b) An increase in the production of goods and services. c) The persistent and appreciable rise in the general price levels of goods and services. d) The stability of the price levels of goods and services over time. Check for understanding How is inflation measured in Australia? a) Gross Domestic Product (GDP). b) Consumer Price Index (CPI). c) Unemployment Rate. d) Balance of Trade. Check for understanding Why are weightings applied to items in the CPI basket? a) To ensure that the most important items and those contributing a higher proportion of household expenditure are weighted higher. b) To exclude luxury items from the CPI basket. c) To randomly assign importance to various items. d) To reduce the overall cost of calculating the CPI. Concept Development Calculations are completed for each and every item in the basket of goods/services based on their price and weighting. The total is calculated. Period 1 or Year 1 is called the base period. We allocate the total a CPI index base number of 100. Concept Development We compare all other years to the base period. In Period 2 below, our total weighted household consumption was $422 compared to $416 in the base period. Therefore our CPI index base number for Period 2 is 101.4. Our inflation has therefore increased by 1.4% Concept Development There are 2 methods of calculating inflation Method 1 Inflation rate = 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 2 −𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 x 100 Method 2 Inflation rate = 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 2 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 - 1 x100 Check for understanding Method 1 Inflation rate = 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 2 −𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 x 100 Method 2 Inflation rate = 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 2 𝐶𝑃𝐼 𝑌𝑒𝑎𝑟 1 - 1 x100 Calculate the inflation rates in Australia for the following years • From 2015 to 2016 • From 2019 to 2020 • From 2022 to 2023 Hint – For the second calculation, 2019 becomes CPI Year 1, 2020 is CPI Year 2. Concept Development The rate of inflation or inflation rate is the rate of change in the price index or CPI from one period to another. A period can be a month, a quarter (3 months) or a year. The annual rate of inflation is the sum of 12 months of inflation data or 4 quarters of inflation data. The target for inflation in Australia is between 2-3% Concept Development Inflation in Australia over the last 40+ years Concept Development Concept Development The distinction between headline and underlying inflation There are many different ways that inflation can be reported in Australia. Headline inflation Underlying (or core or seasonally adjusted) inflation Definition: Headline inflation measures the total inflation within an economy, including all goods and services. Definition: Underlying inflation, also known as core inflation, excludes certain volatile items to provide a clearer view of the long-term inflation trend. Components: It includes volatile items such as food and energy prices, which can fluctuate widely due to factors like weather, geopolitical events, and market conditions. Components: Typically, core inflation excludes food and energy prices because these items can be highly volatile and can distort the overall inflation trend. Measurement: This is often the figure reported in news headlines and used in public discussions. It reflects the actual cost changes experienced by consumers and businesses. Measurement: By focusing on the more stable components of the Consumer Price Index (CPI), core inflation provides a better measure of the underlying, persistent inflationary pressures in the economy. Concept Development What does headline inflation measure? a) The long-term inflation trend, excluding volatile items. b) The total inflation within an economy, including all goods and services. c) The inflation rate of luxury goods only. d) The inflation rate of government services. Concept Development Which items are typically excluded from core inflation to provide a clearer view of long-term trends? a) Housing and transportation. b) Food and energy. c) Education and healthcare. d) Technology and communication. Concept Development Why do central banks, such as the Reserve Bank of Australia (RBA), often focus on core or underlying inflation for decision making? a) To avoid overreacting to temporary price shocks in volatile items. b) To measure the inflation rate of government services. c) To include luxury goods in the inflation calculation. d) To measure short-term fluctuations in the cost of living. Concept Development The distinction between headline and underlying inflation There are other ways in which inflation can be reported in Australia besides headline inflation. Trimmed Mean Inflation – The top 15% and the bottom 15% of all price movements are “trimmed away” and removed from the inflation calculation. This removes the impact of the smallest and largest price changes Weighted Median Inflation – The inflation rate is calculated based on the price change of the item that is at the middle of all of the price changes in the CPI basket. Concept Development The distinction between headline and underlying inflation The difference between headline and seasonally adjusted (underlying) inflation can be quite small, but the trimmed mean and weighted median can vary. Check for understanding 1. Explain the concept of inflation 2. Why are goods and services in the CPI basket given a “weight”? 3. If the CPI in Year 1 was 132.4 and it increased to 136.7 in Year 2, calculate the inflation rate. 4. In what way is underlying inflation a better measure of inflation than headline inflation. Inflation · the concept, and measurement, of inflation · the distinction between headline and underlying inflation · the causes and types of inflation, including demand pull and cost push · the effects of inflation · the impact of events on the trends in inflation in Australia over the last five years Learning Objective • Students will be able to explain the concept of inflation • Students will be able to calculate and measure inflation from given data • Students will be able to explain the difference between headline and underlying inflation Success Criteria

Daily Review What is the difference between real and nominal GDP? Calculate: If Australia's real GDP grew from $2.0 trillion to $2.1 trillion, what is the growth rate? Why do economists use GDP per capita when comparing living standards between countries? Learning Intentions Success Criteria Define and measure economic growth Understand GDP, inflation, and unemployment Analyse production possibilities and aggregate production functions Evaluate the benefits and costs of economic growth Explore sustainability in economic development Correctly calculating economic growth rates using real GDP data Distinguishing between real and nominal GDP with accurate explanations Identifying and explaining the three pillars of economic sustainability Drawing and interpreting PPF and APF models with proper labelling Analysing the costs and benefits of economic growth using real-world examples Concept Development What is Economic Growth? Definition: Economic Growth is the increase in the production of goods and services in an economy over a period of time, typically measured as the percentage increase in real GDP from one period to another. Key Characteristics: Quantitative Measure: Focuses on increasing output and production Time-Based: Measured over specific periods (quarterly, annually) Real Terms: Adjusted for inflation to show true growth Per Capita: Often measured per person to account for population changes Growth vs Development: Economic Growth: Quantitative increase in output Economic Development: Qualitative improvements in living standards, education, healthcare, and social welfare Concept Development Real GDP Formula: Real GDP = (Nominal GDP ÷ GDP Deflator) × 100 Or it can be: Real GDP = Nominal GDP – Inflation Rate Why Real GDP Matters: Provides accurate measure of economic growth Allows meaningful comparisons across time periods Essential for economic policy decisions Concept Development Aspect Nominal GDP Real GDP Definition GDP measured at current market prices GDP adjusted for inflation using constant prices Price Level Uses current year prices Uses base year prices Inflation Impact Includes effects of inflation Removes effects of inflation Use Shows current economic size Shows actual economic growth Real GDP vs Nominal GDP Concept Development What is a Sustainable Economy? Definition: A sustainable economy is one that meets the needs of the present generation without compromising the ability of future generations to meet their own needs, while maintaining ecological balance and social equity. Concept Development The Three Pillars of Sustainability: Environmental Pillar: Resource conservation Pollution reduction Biodiversity protection Social Pillar: Social equity Quality of life Community well-being Economic Pillar: Long-term viability Efficient resource use Stable employment Concept Development Price Stability Definition: Price Stability refers to a situation where the general level of prices in the economy remains relatively constant over time, with low and predictable inflation rates. Characteristics of Price Stability: Low Inflation: Typically 2-3% annual inflation rate Predictable: Inflation expectations are well-anchored Stable: No sudden price level changes Sustainable: Can be maintained over long periods Concept Development Benefits: Encourages long-term planning Protects purchasing power Reduces uncertainty Promotes investment Risks of Instability: Erodes savings value Creates economic uncertainty Distorts resource allocation Hurts fixed-income earners Concept Development Calculating Economic Growth Rate Primary Formula: Economic Growth Rate = [(GDP₂ - GDP₁) ÷ GDP₁] × 100 Where: GDP₂ = GDP in current period GDP₁ = GDP in previous period Example Calculation: Scenario: Country's real GDP was $500 billion in 2022 and $525 billion in 2023 Growth Rate = [(525 - 500) ÷ 500] × 100 Growth Rate = [25 ÷ 500] × 100 Growth Rate = 5% Concept Development Real GDP Per Capita Definition: Real GDP Per Capita is the total real GDP of a country divided by its population, providing a measure of average economic output per person. Formula: Real GDP Per Capita = Real GDP ÷ Population Why It Matters: Standard of Living: Better indicator of individual prosperity International Comparisons: Compare countries of different sizes Population Adjusted: Accounts for population growth effects Policy Making: Helps assess economic policies' effectiveness Trend Analysis: Shows whether growth benefits individuals Concept Development Utility in Economics Definition: Utility is the satisfaction, happiness, or benefit that a consumer derives from consuming goods and services. It's a measure of how much value or pleasure someone gets from their consumption choices. Law of Diminishing Marginal Utility: As a person consumes more units of a good, the additional satisfaction from each extra unit decreases. Example: First slice of pizza = high satisfaction Second slice = less additional satisfaction Third slice = even less additional satisfaction Concept Development Sustainability in Economics Definition: Economic Sustainability refers to practices and policies that support long-term economic growth without depleting natural resources or causing severe ecological damage, ensuring future generations can meet their needs. Concept Development Production Possibilities Frontier (PPF) Model Definition: The Production Possibilities Frontier (PPF) is a curve that shows the maximum possible combinations of two goods or services an economy can produce with its available resources and technology, assuming full employment and efficiency. TEACHER CUE What are the limitations of the PPF model? Concept Development Aggregate Production Function (APF) Model Definition: The Aggregate Production Function (APF) shows the relationship between the total output of an economy and the inputs used in production, typically labour and capital, holding technology constant. Concept Development Law of Diminishing Returns Definition: The Law of Diminishing Returns states that when one input is increased while other inputs remain constant, the marginal (additional) output from each additional unit of the variable input will eventually decrease. How It Shows on APF Model: Curve Shape: APF curve becomes flatter as labour increases Decreasing Slope: Each additional worker adds less output Marginal Product: Falls as more labour is added Capital Fixed: Occurs when capital remains constant Concept Development Benefits of Economic Growth Economic Benefits Higher Income More Jobs Business Opportunities Government Revenue Innovation Social Benefits Better Healthcare Education Infrastructure Social Programme Cultural Development Individual Benefits Career Advancement Consumer Choice Quality of Life Financial Security Concept Development Costs of Economic Growth Environmental Costs: Pollution: Air, water, and soil contamination Resource Depletion: Overuse of natural resources Climate Change: Increased greenhouse gas emissions Deforestation: Loss of forests for development Biodiversity Loss: Habitat destruction and species extinction Concept Development Social Costs: Income Inequality: Widening gap between rich and poor Urban Crowding: Overcrowded cities and housing shortages Cultural Loss: Traditional ways of life disappearing Work Stress: Increased pressure and longer working hours Social Displacement: Communities disrupted by development Concept Development Economic Costs: Inflation: Rising prices reducing purchasing power Economic Instability: Boom and bust cycles Resource Misallocation: Inefficient use of capital and labour External Dependencies: Reliance on foreign markets and resources Concept Development Summary Economic Growth: Increase in real GDP over time Real GDP: GDP adjusted for inflation Growth Rate: [(GDP₂ - GDP₁) ÷ GDP₁] × 100 Real GDP: (Nominal GDP ÷ GDP Deflator) × 100 PPF Model: Shows production trade-offs and opportunity costs APF Model: Demonstrates relationship between inputs and output Diminishing Returns: Decreasing marginal productivity Benefits: Higher living standards, job creation, innovation Costs: Environmental degradation, inequality, resource depletion

Economic Growth · the concept and measurement of economic growth · the distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita · GDP as a measure of economic welfare · the demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) · the determinants of economic growth · the costs and benefits of economic growth · the trends in economic growth in Australia over the last five years Learning Objective Success Criteria Students will be able to explain the costs and benefits of economic growth Students will be able to identify and explain the trends in Australia’s economic growth over the last 5 years. Activate Prior Knowledge Activate Prior Knowledge Concept Development Economic growth as a whole is a positive things for an economy, however like all economic events, economic growth has positives and negatives for individuals and certain groups in our economy. Benefits of Economic Growth Costs of Economic Growth Increasing real income and material welfare May not raise living standards of everybody in the community at the same rate Higher quality goods and services May bring inflationary pressure Increased taxation for the government Associated with structural change Increase in leisure time Associated with economic “bads” as well as “goods” Concept Development • Increasing real income and material welfare There is a greater production of G&S, there is increasing real incomes, as the demand for the factors of production increase (land, labour, capital etc). Greater employment opportunities and higher incomes leads to greater purchasing power, improved living standards, better healthcare and education. Concept Development • May not raise living standards of everybody in the community at the same rate Can lead to income inequality, where the benefits of E.G are not spread evenly. “The rich get richer, and the poor get poorer” Income inequality surges as richest group gets more than 90 per cent of the gains, Australia Institute finds - ABC News Concept Development This graph shows real economic growth, per adult. The share of growth (%) going to the top 10 per cent of earners and the bottom 90 per cent of earners. "Ninety-three per cent of the gains from economic growth have gone to the top 10 per cent of income earners. The rest of us — the bottom 90 per cent — have only got 7 per cent of that economic growth." Concept Development • Higher quality goods and services Growth is associated with improvements in resource use and efficiency. It promotes the acquisition of knowledge, skills, technological change and productivity. Each of these leads to newer and better quality goods and services. Concept Development • May bring inflationary pressure If our economy is close to its full capacity and if resources (including land and labour) are fully employed, this will put pressure on prices. High levels of employment may increase the price of wages and result in pay increases. At the same time, high demand for other resources also increases the price of them. Both are passed onto the consumer as increased prices of G&S. Concept Development Increased taxation for the government As the economy expands, individuals and businesses earn higher incomes and profits, leading to greater tax revenues. With more people employed and earning higher wages, personal income tax collections rise. Similarly, businesses experiencing growth pay more in corporate taxes. Additionally, increased consumer spending, driven by higher incomes, leads to higher sales tax revenues (increased GST revenue). Concept Development • Associated with structural change Structural change is a significant shift in the economy's structure, such as changes in industries or employment patterns. It often involves a transition from one dominant sector to another, like from manufacturing to services. Different sectors of our economy grow at different rates. This may create disruption in some industries over others. It may also create structural unemployment in some industries as jobs shift. Concept Development • Increase in leisure time With higher incomes and more efficient production processes, it becomes possible for workers to achieve the same level of output in fewer hours. This can lead to a reduction in the number of hours people need to work. As a result of reduced working hours and higher incomes, people have more free time to spend on leisure activities. They can choose to spend this extra time on hobbies, family, rest, or other personal pursuits. This increases quality of life. Concept Development Associated with economic “bads” as well as “goods” High rates of economic growth can be associated with environmental issues. As GDP grows (and therefore output), issues such as climate change, pollution and resource depletion. These typically occur when the environment is considered a “free good”. This creates negative externalities. A negative externality occurs when an economic activity imposes a cost on third parties who are not involved in the activity. This means that the producer or consumer of a good or service does not bear the full cost of their actions, leading to overproduction or overconsumption of that good or service. • the trends in economic growth in Australia over the last five years • the trends in economic growth in Australia over the last five years • Pre-Pandemic Growth (2018- 2019) • In 2018 and 2019, Australia's economic growth was moderate, driven by strong export performance, particularly in commodities • However, domestic consumption and investment were relatively subdued • the trends in economic growth in Australia over the last five years • Impact of COVID-19 (2020) • The Australian economy entered a recession in the first half of 2020 due to the COVID-19 pandemic, marking the first recession in nearly three decades. GDP contracted sharply as lockdowns and restrictions were imposed to curb the virus spread. • However, domestic consumption and investment were relatively subdued

Inflation · the concept, and measurement, of inflation · the distinction between headline and underlying inflation · the causes and types of inflation, including demand pull and cost push · the effects of inflation · the impact of events on the trends in inflation in Australia over the last five years Learning Objective • Students will be able to accurately distinguish between demand pull and cost push inflation by providing clear examples of each type • Students will be able to explain the causes of both demand pull and cost push inflation. • Students will demonstrate their understanding by correctly identifying and justifying the type of inflation in various economic scenarios. Success Criteria Concept Development Concept Development The causes and types of inflation, including demand pull and cost push There are two main causes and types of inflation that exist. Cost push inflation – The result of an increase in inflation and an increase in goods and services caused by supply side events. These events push up the cost of inputs. Driven by supply costs Examples include • Natural disasters (floods, fires, earthquakes) • Geopolitical events • Increasing import prices caused by a depreciating Australian dollar • Wage increases • Increase in taxes Concept Development The causes and types of inflation, including demand pull and cost push Cost Push Inflation When the price level for goods and services increases due to a rising cost of wages and raw materials without a change in the level of demand, this is known as cost-push inflation. These higher costs of production are then passed onto consumers through increased prices for goods and services, causing an appreciable rise in the general price level for products within the economy. Imagine a fictional country, Coffeeland. Coffeeland experiences a devastating fungal disease that wipes out 60% of its coffee bean crops. With the supply of coffee beans drastically reduced, the cost of obtaining coffee beans skyrockets. Coffee producers and other related industries are forced to increase their prices to cover the higher cost of coffee beans. This results in a general increase in the price level of goods and services across Coffeeland, leading to cost-push inflation. Concept Development The causes and types of inflation, including demand pull and cost push Model it – We can model cost push inflation using a supply and demand graph Price ($) Quantity (,000) Supply (S) Demand (D) Cost Push Inflation Q1 P1 Concept Development The causes and types of inflation, including demand pull and cost push There are two main causes and types of inflation that exist. Demand pull inflation – Refers to inflation that is caused by an excessive amount of demand. This is often caused when demand increases exceed supply. Driven by consumer demand Examples include • high levels of consumer spending • increasing wages that increases household spending • high levels of borrowing that increases household spending • increases in property or share prices that increases household wealth. Concept Development The causes and types of inflation, including demand pull and cost push Demand Pull Inflation Demand Pull inflation occurs when there is a rise in aggregate (total) demand, however, little or no change in aggregate supply. Put simply, demand pull inflation is caused by increased demand for a certain good that is so great, producers cannot increase supply quickly enough to meet demand. Demand Pull inflation may be caused by a growing economy where consumers feel confident to spend money, increased exports, increased government spending, or expectations of future price An example of this type of inflation could include the new demand for Teslas. The new demand for electric cars following the surge in oil prices can be an example of demandpull inflation as their popularity increased so suddenly, production wasn't anticipating the level of demand. Concept Development The causes and types of inflation, including demand pull and cost push Model it – We can model demand pull inflation using a supply and demand graph Price ($) Quantity (,000) Supply (S) Demand (D) Demand Pull Inflation Q1 P1 Independent Practice 1. Cost-Push Inflation • Cost-push inflation is the result of an increase in inflation and an increase in goods and services caused by supply-side events. These events push up the cost of ___________. Examples of cost-push inflation include natural disasters, ___________ events, increasing import prices caused by a depreciating currency, ___________ increases, and increases in taxes. • When the price level for goods and services increases due to rising costs of ___________ and raw materials without a change in the level of ___________, this is known as cost-push inflation. These higher costs of production are passed onto consumers through increased ___________ for goods and services, causing an appreciable rise in the ___________ price level for products within the economy. 2. Demand-Pull Inflation • Demand-pull inflation refers to inflation that is caused by an excessive amount of ___________. This often occurs when demand increases exceed ___________. Examples of demand-pull inflation include high levels of consumer spending, increasing ___________ that increase household spending, high levels of borrowing that increase household spending, and increases in property or share ___________ that increase household wealth. • Demand-pull inflation occurs when there is a rise in ___________ (total) demand with little or no change in ___________ supply. Demand-pull inflation is caused by increased demand for a certain good that is so great, producers cannot increase supply quickly enough to meet demand. Word Bank: Aggregate Supply Geopolitical Inputs Wages Prices Supply Wages Prices General Demand Demand Concept Development Event Demand Pull or Cost Push Explanation A sudden increase in consumer confidence leads to a surge in spending on electronics and appliances. A significant increase in the minimum wage increases the cost of labour across multiple industries. A natural disaster destroys a major oil refinery, leading to higher fuel costs. A popular new smartphone is released, causing a massive spike in demand that outstrips supply. New environmental regulations increase the cost of manufacturing and compliance for businesses. An unexpected surge in international tourism boosts demand for local hotel accommodations and services. Trade restrictions are imposed on a major exporting country, causing import prices to rise for numerous commodities. Inflation · the concept, and measurement, of inflation · the distinction between headline and underlying inflation · the causes and types of inflation, including demand pull and cost push · the effects of inflation · the impact of events on the trends in inflation in Australia over the last five years Learning Objective • Students will be able to accurately distinguish between demand pull and cost push inflation by providing clear examples of each type • Students will be able to explain the causes of both demand pull and cost push inflation. • Students will demonstrate their understanding by correctly identifying and justifying the type of inflation in various economic scenarios. Success Criteria PLAINER CAN WE STOP INFLATION? VideoLab NEWS HARRISDALESenior High School

Economic growth · the concept and measurement of economic growth · the distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita · GDP as a measure of economic welfare · the demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) · the determinants of economic growth · the costs and benefits of economic growth · the trends in economic growth in Australia over the last five years Learning Objective Success Criteria Understanding the PPF Model: •Students can accurately define the Production Possibility Frontier (PPF) and explain its purpose. •Students can explain how a movement along the PPF represents trade-offs and opportunity costs between different types of goods. •Students can describe how an outward shift of the PPF indicates economic growth and identify factors that cause this shift, such as increases in resources or technological advancements. Understanding the APF Model: •Students can accurately define the Aggregate Production Function (APF) and explain its purpose. •Students can illustrate the APF curve, showing the relationship between real GDP and the labour force, holding other factors constant. •Students can explain why the APF curve is not a straight line and how it demonstrates the Law of Diminishing Returns. •Students can describe how an upward shift in the APF curve indicates economic growth and identify factors that cause this shift, such as increases in capital, technological improvements, and enhanced labour productivity. Concept Development The demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) The production possibility frontier (PPF) model shows the combinations of output that an economy can produce using its available resources and level of technology for a given time period. On one axis is consumer goods (cars, clothing etc), and on the other is capital goods (machinery, technology). It illustrates trade-offs and opportunity costs: producing more of one good means sacrificing production of another Concept Development Moving along the PPF involves an opportunity cost. Remember – an opportunity cost involves giving up something to gain another thing. For instance, if an economy produces more consumer goods, it must sacrifice some capital good production. Note - Moving along the PPF does not demonstrate economic growth. Concept Development Economic growth is demonstrated by an outward shift of the PPF curve. Investment in an economy is seen as the “engine” for economic growth because it allows the creation of capital goods. Capital goods are used to produce final goods and services. Sacrificing some consumer goods now allows a greater long term economic growth (and therefore greater consumer good consumption in the future) See the movement outwards of the PPF from Point Y Concept Development On the other hand, if available resources are concentrated to produce consumer goods today, that will potentially mean less consumption in the future. See the movement from Point X Choices made today can have a significant impact on a country’s future living standards Concept Development Check for understanding Question 1: If an economy decides to produce more consumer goods, what happens to the production of capital goods at the same time? •A) The production of capital goods increases. •B) The production of capital goods decreases. •C) The production of capital goods remains the same. •D) The production of capital goods becomes zero. Question 2: Which of the following scenarios best demonstrates economic growth? •A) Moving from one point to another on the existing PPF. •B) An outward shift of the PPF. •C) An inward shift of the PPF. •D) Staying at the same point on the PPF. Check for understanding Question 3: What is the opportunity cost of an economy investing in more capital goods today? •A) Increased production of consumer goods today. •B) Increased future consumption of consumer goods. •C) Decreased production of consumer goods today. •D) Decreased future production of capital goods. Question 4: If a country focuses all its resources on producing consumer goods today, what is the likely impact on future living standards? •A) Future living standards will improve. •B) Future living standards will decline. •C) Future living standards will remain unchanged. •D) Future living standards will improve at a slower rate. Question 5: What is the future benefit of an economy investing in more capital goods today? •A) Increased production of consumer goods today. •B) Increased future consumption of consumer goods. •C) Decreased production of consumer goods today. •D) Decreased future production of capital goods. Check for understanding Question 1: If an economy decides to produce more consumer goods, what happens to the production of capital goods? •A) The production of capital goods increases. •B) The production of capital goods decreases. •C) The production of capital goods remains the same. •D) The production of capital goods becomes zero. Question 2: Which of the following scenarios best demonstrates economic growth? •A) Moving from one point to another on the existing PPF. •B) An outward shift of the PPF. •C) An inward shift of the PPF. •D) Staying at the same point on the PPF. Check for understanding Question 3: What is the opportunity cost of an economy investing in more capital goods today? •A) Increased production of consumer goods today. •B) Increased future consumption of consumer goods. •C) Decreased production of consumer goods today. •D) Decreased future production of capital goods. Question 4: If a country focuses all its resources on producing consumer goods today, what is the likely impact on future living standards? •A) Future living standards will improve. •B) Future living standards will definitely decline. •C) Future living standards will remain unchanged. •D) Future living standards will improve at a slower rate. Question 5: What is the future benefit of an economy investing in more capital goods today? •A) Increased production of consumer goods today. •B) Increased future consumption of consumer goods. •C) Decreased production of consumer goods today. •D) Decreased future production of capital goods. Independent Practice You will be given explanations/responses to the following questions. They will be missing key words. Use the word bank to complete the response. • Describe what a production possibility frontier illustrates? • Explain why economic growth more likely to result from producing more capital goods? • As more resources are available over time, identify and explain what happens to the PPF? Independent Practice Describe what a production possibility frontier illustrates? The Production Possibility Frontier (PPF) illustrates the different _________ of two goods or services (such as capital and ______) that an economy can produce using its available resources and _________. It shows the trade-offs and __________ costs that come with the production of different goods. The PPF curve also demonstrates the ________ potential ________ of an economy, assuming all resources are used ________. Word bank: opportunity, efficiently, maximum, combinations, output, technology, consumer In your workbooks/device – Sort the word bank in order to ensure that the response makes sense Independent Practice Describe what a production possibility frontier illustrates? The Production Possibility Frontier (PPF) illustrates the different combinations of two goods or services (such as capital and consumer) that an economy can produce using its available resources and technology. It shows the trade-offs and opportunity costs that come with the production of different goods. The PPF curve also demonstrates the maximum potential output of an economy, assuming all resources are used efficiently. Independent Practice Explain why economic growth more likely to result from producing more capital goods? __________ growth is more likely to result from producing more _______ goods because these goods, such as machinery, ________, and technology, are used to produce other goods and services. By investing in capital goods, an economy increases its _______ capacity, which can lead to _______ output and efficiency in the ______. This investment in capital goods enhances the ability to produce _______ goods, leading to greater overall economic growth and improved _______ standards over time. Word bank: equipment, consumer, economic, living, future, productive, capital, higher In your workbooks/device – Sort the word bank in order to ensure that the response makes sense Independent Practice Explain why economic growth more likely to result from producing more capital goods? Economic growth is more likely to result from producing more capital goods because these goods, such as machinery, equipment, and technology, are used to produce other goods and services. By investing in capital goods, an economy increases its productive capacity, which can lead to higher output and efficiency in the future. This investment in capital goods enhances the ability to produce consumer goods, leading to greater overall economic growth and improved living standards over time. Independent Practice As more resources are available over time, identify and explain what happens to the PPF? As more ______ become available over time, the PPF shifts ________. This outward shift represents an _______ in the economy's capacity to produce goods and services, indicating economic ________. The availability of additional resources, advancements in ________, or improvements in labour skills can all contribute to this expansion, allowing the economy to produce more of ______ consumer and capital goods than before. Word bank: outwards, technology, increase, resources, both, growth In your workbooks/device – Sort the word bank in order to ensure that the response makes sense Independent Practice As more resources are available over time, identify and explain what happens to the PPF? As more resources become available over time, the PPF shifts outwards. This outward shift represents an increase in the economy's capacity to produce goods and services, indicating economic growth The availability of additional resources, advancements in technology or improvements in labour skills can all contribute to this expansion, allowing the economy to produce more of both consumer and capital goods than before. In your workbooks/device – Sort the word bank in order to ensure that the response makes sense Concept development The demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) The aggregate production function (APF) was developed to help explain the causes of economic growth. The Aggregate Production Function (APF) is an economic model that describes the relationship between total output (usually measured as real GDP) and the inputs used in production. Concept development Concept Development The Aggregate Production Function (APF) shows the relationship between two variables – real GDP and the labour force. We hold all other factors constant (eg capital, or tech) Real GDP – Gross Domestic Product (C+I+G+NX), adjusted for inflation Labour Force – The people in an economy that are able to work Concept Development As we increase the quantity of labour, then real GDP increases. Put simply, the more labour we have, the higher the production of goods and services. This is shown by a movement from A to B to C. Concept Development The APF is however, not a straight line! It curves downwards. This means that it increases at a decreasing rate. Why? The Law of Diminishing Returns Concept Development The Law of Diminishing Returns As the usage of labour increases (and capital remains constant), output will rise, but at a decreasing rate. Example: Scenario: A factory with workers. Explanation: • Hiring more workers can increase production capabilities. • However, beyond a certain point, adding more workers may lead to diminishing returns. • Each additional worker contributes less to overall output. Concept Development Link to economic growth So far we have held capital goods constant. If the quantity of capital did increase, it would move the APF curve upwards. Concept Development The result Output per worker increases This is called an increase in labour productivity. • The same amount of workers (L2 stays the same) …. • … produces a higher amount of goods and services (as seen by an increase in real GDP from Y2 to Y4) Concept Development Other reasons for the shift in APF The APF may also shift upwards if • Education increases, increasing the quality of labour • Training of workers to improve skills • Increases in the quality of capital • Technological improvements • Community health programs improve health outcomes for workers Concept Development Check for understanding What does the Aggregate Production Function (APF) describe? •A) The relationship between capital and technology. •B) The relationship between total output (real GDP) and the inputs used in production. •C) The relationship between consumer goods and capital goods. •D) The relationship between government spending and net exports. According to the APF, what happens to real GDP as the quantity of labour increases, holding all other factors constant? •A) Real GDP decreases. •B) Real GDP remains the same. •C) Real GDP increases at an increasing rate. •D) Real GDP increases at a decreasing rate. Why does the APF curve downwards, meaning it increases at a decreasing rate? •A) Because of technological improvements. •B) Due to the Law of Diminishing Returns. •C) Because of increased capital goods. •D) Due to improved education and training. Check for understanding What does the Aggregate Production Function (APF) describe? •A) The relationship between capital and technology. •B) The relationship between total output (real GDP) and the inputs used in production. •C) The relationship between consumer goods and capital goods. •D) The relationship between government spending and net exports. According to the APF, what happens to real GDP as the quantity of labour increases, holding all other factors constant? •A) Real GDP decreases. •B) Real GDP remains the same. •C) Real GDP increases at an increasing rate. •D) Real GDP increases at a decreasing rate. Why does the APF curve downwards, meaning it increases at a decreasing rate? •A) Because of technological improvements. •B) Due to the Law of Diminishing Returns. •C) Because of increased capital goods. •D) Due to improved education and training. Check for understanding What impact does an increase in the quantity of capital have on the APF curve, assuming the labour force remains constant? 1.A) It shifts the APF curve downwards. 2.B) It shifts the APF curve upwards. 3.C) It makes the APF curve a straight line. 4.D) It has no impact on the APF curve. Which of the following factors can cause the APF to shift upwards, indicating economic growth? 1.A) Decrease in community health programs. 2.B) Decrease in the quality of capital. 3.C) Improvements in technology. 4.D) Reduction in worker training programs. Check for understanding What impact does an increase in the quantity of capital have on the APF curve, assuming the labour force remains constant? 1.A) It shifts the APF curve downwards. 2.B) It shifts the APF curve upwards. 3.C) It makes the APF curve a straight line. 4.D) It has no impact on the APF curve. Which of the following factors can cause the APF to shift upwards, indicating economic growth? 1.A) Decrease in community health programs. 2.B) Decrease in the quality of capital. 3.C) Improvements in technology. 4.D) Reduction in worker training programs. Independent Practice 1. What is the aggregate production function 2. Explain why the APF does not have a constant slope 3. Use the APF model to explain the effect of an increase in capital stock on output. Economic growth · the concept and measurement of economic growth · the distinction between nominal Gross Domestic Product (GDP), real GDP, and real GDP per capita · GDP as a measure of economic welfare · the demonstration of economic growth using the Production Possibility Frontier (PPF) and Aggregate Production Function (APF) · the determinants of economic growth · the costs and benefits of economic growth · the trends in economic growth in Australia over the last five years Learning Objective