Material Living Standards: Determined by access to goods and services, income levels, employment rates, and GDP per capita.
Non-Material Living Standards: Includes quality of life factors like happiness, health, environmental quality, crime rates, and leisure time.
Trade-offs: Improving material living standards may negatively impact non-material ones, such as environmental degradation or social stress.
Economic Activity: The process of producing goods and services to meet societal needs.
Measurement: GDP per capita is a key indicator, but other factors like wealth distribution and unemployment also influence actual living standards.
Effects on Living Standards:
Higher economic activity raises income but can harm the environment.
Balanced growth can improve both material and non-material aspects.
Four Phases:
Expansion: Rising GDP, employment, and inflation.
Peak: Maximum GDP growth, low unemployment, high inflation.
Contraction: Slowing GDP growth, rising unemployment, falling inflation.
Trough (Recession if prolonged): Lowest economic activity, high unemployment, deflation possible.
Stagflation: A rare scenario where high inflation and high unemployment coexist.
Five Sectors:
Households: Supply labor and consume goods.
Businesses: Produce goods and services.
Government: Collects taxes and provides public goods.
Financial Institutions: Facilitate investment and savings.
Overseas Sector: Trade with foreign economies.
Key Flows:
Leakages: Savings, taxes, imports (reduce spending).
Injections: Investment, government spending, exports (boost spending).
Definition: Total spending on goods and services (AD = C + I + G + X - M).
Key Influences:
Consumer & Business Confidence: Higher confidence increases spending.
Interest Rates: Higher rates discourage borrowing and spending.
Government Policies: Budget surpluses reduce AD, deficits boost AD.
Exchange Rates: Weaker currency boosts exports, stronger one reduces them.
Overseas Growth: Higher growth abroad increases demand for exports.
Definition: Total supply of goods and services in the economy.
Key Influences:
Resources Availability: More skilled labor and capital boost AS.
Production Costs: Lower costs improve profitability and expand AS.
Technology & Productivity: Increases efficiency and potential GDP.
Regulations & Policies: Can either support or restrict economic activity.
Climate & Supply Chains: Natural disasters and disruptions impact AS.
Macroeconomic Goals:
Sustainable economic growth (around 3% GDP growth per year).
Low unemployment (4-4.5% is ideal).
Low inflation (2-3% annual target).
Governmentâs Role:
Fiscal policy (spending and taxation) to influence AD.
Monetary policy (interest rates) to regulate inflation and growth.