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A concise overview of key economic concepts and formulas relevant to hsc (higher school certificate) economics. It covers topics such as the value of subsidies, terms of trade, income output, multipliers, globalisation, and various international economic indicators. It also includes definitions of key terms related to international trade, balance of payments, and economic development, making it a useful resource for students studying economics at the high school or early university level. The document serves as a quick reference guide for understanding and applying these concepts in exam settings and broader economic analysis. It is designed to aid in exam preparation by providing direct answers to potential exam questions, enhancing comprehension and recall of essential economic principles. A valuable tool for students seeking to reinforce their understanding of core economic principles and improve their exam performance.
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Value of subsidy= - Answer =vertical distance between two supply curves Terms of trade= - Answer =Export price index ➗ Import price index X 100Income output/ AD= - Answer =C+I+G+(X-M) MultiplierK= - Answer =
➗ 1-MPCMPC= - Answer =
🔼Consumption ➗ 🔼Income (Y) 🔼GDP/Y= - Answer =k x 🔼AD Globalisation - Answer The integration btwn diff. countries & economies that leads to theincreased impact of int. influences on all aspects of life and ec activity The global economy - Answer Term used to describe the activities of all economies,reflecting that they are now increasingly linked tgthr into 1 ec unit Gross World Product - Answer The sum of total output of g&s produced by all economiesin the world as a whole. Migration - Answer The measurement of people btwn countries on a permanrnt/ longtermbasis, 12 months+
International Division of labour - Answer The means by which tasks in the prodn processare allocated to diff ppl in diff countries around the world Foreign Direct investment (FDI) - Answer The movement of funds btwn economies for thepurpose of est. a new company / buying a substantial proportion of shares in an existing one. (10% +) TNC's - Answer Glbl companies that dominate glbl product and factor markets. They haveprodn facilities in 2+ countries & owned by residents of 2+ countries FOREX - Answer foreign exchange mrkts for the buying & selling of currencies as ameans of facilitating finance flows btwn countries Speculators - Answer Investors who buy/sell financial assets w/ the aim of making profitsfrom ST price movements. They are often criticised for creating volatility. International Monetary Fund (IMF) - Answer International agency that consists of 188members and o/s the stability of the glbl financial system. Major functions: stability of exchange rates& their adjustments & convertibility World trade Organisation (WTO) - Answer An organisation of 155 member countries thatimplements & advances GTA's & resolves trade disputes btwn nations Comparative advantage - Answer Ec principle: nations should specialise in the areas ofprodn theyre most efficient in (lowest op. cost) & trade w/ nations to max both nations SOLInternational Business Cycle - Answer The fluctuations in the lvl of ec activity in the glbl economy over timeRegional Business Cycle - Answer The fluctuations in the lvl of ec activity in a geo region of the glbl ec over time Free trade - Answer Situation where there r no artificial barriers to trade imposed by govthat restrict the free exchange of g&s Opportunity cost/ real cost/ ec cost - Answer A representation of the alt use of resources.Represents the cost of satisfying 1 want over an alt want. Tariffs - Answer Taxes imposed on Imp goods for the purpose of protecting domesticindustries Subsidies - Answer $ payments from gov to bus to encourage prodn of a g/s & influencethe allocn of resources in an ec. Often granted to bus to help them compete w/ o/s prodn of g&s Quotas - Answer Restrictions on the amounts/ values of various kinds of goods that maybe imported World Bank - Answer Financial inst owned by 188 countries that assist poorer nations w/
Savings-investment gap - Answer When an economy has low lvls of savings but requirehigh lvls of investment, which as a result of low savings cannot be funded
Balance of Payments (BOP) - Answer The record of the transactns btwn aus & rest ifworld during a given period, incl. current account & capital & financial account (KAFA)
Current account - Answer Part of the BOP that shows the receipts & payments for g&s,transfer payments and Y flows btwn aus and world in a given time period. These are non-reversible transactions Net goods - Answer Diff btwn what Aus receives for exports (+) & pays for its imports (-) Net primary income (NPY) - Answer Income recieved & paid in relation to investment, incl.loans
Net secondary income (NSY) - Answer Transactions w/o g/s provided in return. Not 'tied'transactions and non-market transfers
Capital & Financial account (KAFA) - Answer Records the borrowing,lending,sales &purchases of assets btwn Aus & the rest of the world. Transactions can be reversed.
Capital account - Answer (+ or -)Foreign conditional & IP rights & franchise
Net direct investment - Answer (+ or -) Fund new investment or >10% shares 'controlling' interest Reserve assets - Answer (+ or -)Transactions related to RBA
Net errors & omissions - Answer The statistical discrepencies. Usually incl. in KAFAaccount. It is included because under floating exchange rate sustem, BOP should balance to zero. Cyclical factors - Answer Factors which vary w/ lvl of ec activity (linked to business cycle) Structural Factors - Answer Factors which are underlying, persostent influences on theBOP
Terms of trade (TOT) - Answer Measure the relative movements in the $ of an economy'simports & exports over a period of time.
Global Financial Crisis (GFC) - Answer The period of extreme volatility on world financialmrkts in 2008-2009 that caused the deepest glbl recession since the Great Depression 1930s Ex stability - Answer An aim of gov policy that seeks to promote sustainability on the exaccounts so that economies can service tgeir foreign debts M/LT
Valuation effect - Answer Where an appreciation of the currency causes immediatedecrease in the $A value of foreign debt
The BOP CONSTRAINT - Answer the extent to which an economys capacity to grow isconstrained by it's need to keep the CAD at a sustainable level
Exchange rate - Answer The price of Australias currency in terms of another country'scurrency
Floating X rate - Answer The value of the currency dtrmnd by demand&supply in mrkt.Dtrmn equilibrium value. This equilibrium changes regularly (hr/hr)
International competitiveness - Answer A measure of the ability if Aus producers to
period of time 'Real' ec growth % - Answer (Real GDP cYr-Real GDP pYr) ➗ (Real GDP pYr) X 100 Real GDP - Answer Nominal GDP ➗ CPI X 100 Target 'sustainable' growth - Answer 3-4% growth rate target Aggregate demand - Answer Total demand for g&s within the economy Aggregate supply - Answer Total productive capacity of the economy Circular flow of income model (CFYM) - Answer Shows that certain economic factors canbe identified as either injections or leakages in the overall level of ec activity
Aggregate demand (AD) - Answer Total level of expenditure in the economy over a givenperiod of time. Includes consumption, investment, gov expend, (X-M)
Aggregate supply (Y) - Answer Total lvl of Y in the economy over a given period of time.Part of national income is collected by gov through tax, rest spent on g&s or saved
AD= - Answer = C+I+G+(X-M)
Income (Y)= - Answer C+S+T Av propensity to consume (APC) - Answer Proportion of total income spent onconsumption
Av propensity to save APS - Answer The proportion of total income that is not spent butis saved for future consumption
Multiplier process - Answer Explains how increase in AD will increase overall national yby much mire than the initial increase.
The multiplier - Answer The greater than proportional increase in national incomeresulting from an increase in AD
MPC/MPS - Answer The proportion of each additional dollar that is saved/ spent onconsumer goods
MPC + MPS = - Answer = The multiplierK= - Answer =
➗ 1-MPC
MPC= - Answer 🔼(Change in) consumption ➗ 🔼 Y
Working age popn (15+)X 100
Participation rate % 2017 - Answer 65.0% Underemployment - Answer The people who work for <full time hrs /week but would liketo work longer hours
Cyclical unemployment - Answer Occurs because of ⬇ lvl ec activity Structural unemployment - Answer Occurs because of mismatch btwn skills ofunemployed & skills required in job vacancies
Frictional unemployment - Answer Occurs when ppl are temporarily unemployed as theychange jobs
Seasonal unemployment - Answer Occurs at predictable times & regulr intervals in the yrbecause of the seasonal nature of some jobs
Non accelerating rate of unenploymentNAIRU - Answer A concept used by economists to refer to the minimum rate of unemployment that can be sustained without inflationary pressureNatural rate of unemployment
Inflation - Answer A sustained increase in the general level of prices in an economy NAIRU rate in Aus % - Answer 5-6% Inflation rate % - Answer 'Measures the % 🔼 in the prices of consumer goods (as
measured by CPI) and therefore reflects any change in the cost of living CPI Consumer price indec - Answer Compiled from calculrions of theof g&s" weighted according to purchasing patterns of Aus HH 🔼 in prices of "a basket
Underlying inflation - Answer Excludes one off and volatile changes in prices andprovides a measure of ongoing price pressures in the economy
Inflation rate % = - Answer = CPI (cYr) - CPI (pYr) ➗ CPI (pYr)X 100
Demand-pull inflation - Answer When AD> productive capacity of the economy, prices wilrise to ⬇ demand
Cost-push inflation - Answer When there is an increase in the production costs,producers will pass these on through ⬆ prices= inflation
Inflationary expectations - Answer When ind expectan ⬆ in inflation ⬆ inflation they will act so as to cause
Australia's CAD - Answer Recorded when debits in the CA (M & Y payments o/s) are > thecredits (X & Y payments from o/s)
Savings and investment gap - Answer A shortage of domestic savings and excess ofinvestment: domestic economy cannot fund domestic investment
inequality in an economy. Calculated by degree which lorenz curve deviates from line ofequality
Gini coefficient = - Answer = A ➗ A+B Environment - Answer Totality of the physical environment in which human society lives,and includes land, water, climate, flora, fauna
Ecologically sustainable developmentESD - Answer concept that maintaining a lvl and qual of ec growth that doesnt result in LT damadge to enviro or depletn of lmtd resouces Market failure - Answer When the price mechanism takes account of private benefits &costs of prodn to consumers and producers but fails to account for indirect costs/benefits to society Negative externality - Answer An unintended negative outcome of ec activity whose costis not reflected in the op of the price mechanism
Tragedy of the commons - Answer The situation when ppl share things and over xploitthem as a result of FOMO
Example of The tragedy of the commons... - Answer If a number of fishers all fish thesame river, their self interest makes them take more fish than they need = LT scarcity of fish Private goods - Answer Those g&s produced by privt producers to max profit, consumdby 1 indvdl at 1 point in time
Characteristics of private goods - Answer Excludable& Rival Excludable - Answer Indivdl unable/unwilling to pay 4 a g/s is 'excluded' from using/obtaining it.
Rival - Answer If one person consumes the g, it is not availbl for consumption by another.1 persons consmptn of the g ⬇ the amt left (physically) 4 others 2 consume & benefit from
Public goods - Answer A g/s that cannot be provided xclusively to those who agree 2 payfor it, consmed jointly by more than 1 indvdl at no addtnl cost
Example of a public good... - Answer A clean environment Characteristics of a public good - Answer Non excludable& Non rival Non excludable - Answer The benefits of a g/s cannot be confined to only those who havepaid. Non payers can enjoy benefits of consumption at no $ cost. Free rider problem
The free rider problem - Answer The benefits of a g/s cannot be confined to only thosewho have paid. Non payers can enjoy benefits of consumption at no $ cost.
Non rival - Answer Consumption of the good by indvdl consumer doesnt reduce theavlblity of the g to everyone else
Pollution - Answer When the Natural environment is degraded in some way such as byhelpful chemical substances, noise or untreated rubbish
Inflation rate targeting began - Answer 1993 Balance of payments constraint - Answer The extent to which a high CAD limits the speedat which the economy can grow
Micro economic policies - Answer improve the opern indvdl firms & industries. Thesepolicies tend to jnfluence the AS of the ec
Fiscal policy - Answer Macro policy influence resource allocation, redistribute Y andreduce fluctuations of BC. Instruments incl gov spending & tax & budget outcome
The budget - Answer The tool of gov gor excercise if fiscal policy. It shows the govsplanned exp and revenue for the next fincl yr
Budget surplus - Answer A positive balance that occurs when the commonwealth govanticipates that total rev of gov (T) will exceed total expend (G)
Surplus= - Answer =T>G Budget deficit - Answer Negative balance that occurs when total exp exceeds totalrevenue
Deficit= - Answer =G>T Balanced budget - Answer A zero balance that occurs when total gov expenditure isequal to total revenue
Balanced= - Answer =G=T
Budget stance - Answer Gives indication of overall impact of fiscal policy on the state ofthe economy
Expansionary budget stance - Answer When the gov plans to increase ec activity Contractionary - Answer When the gov plans to decrease economic activity Neutral - Answer When the gov plans to keep ec activity stable Cyclical/ non discretionary changes - Answer Changes in economic conditions and theimpact on gov
Automatic stabilisers - Answer Policy instruments in the gov budget that counterbalanceec activity. In a boom they decrease ec activity in reces increase ec activity
Countercyclical - Answer Policies designed to smooth fluctuations in BC.Macroeconomic policies such as fiscal policy and monetary policy usually used as countercyclical policies Structural/ discretionary changes - Answer Changes in gov policy T-G-I= - Answer = Fiscal outcome Crowding out effect - Answer Where gov spending is funded through borrowing from prvtsector, ^ pressure on IR & crowds out prvt sector I can't borrow at ^ IR
Monetary policy - Answer Involves actions by the RBA to influence the cost & supply ofmoney & credit in domst Ec, to achieve gov policy objectives
DMOs
MP early 2000s - Answer ContractionaryTightened due to mining boom & intro of GST
MP mid 2000s - Answer EXPANSIONARYsupport growth in mild downturn (GFC)
2011-12 MP - Answer EXPANSIONARY cash rate falls to 3.5% by mid 2012Low dom inflation / uncertain global outlook
2013/ current MP - Answer EXPANSIONARY cash rate falls BELOW emergency rate of 3% in response to high dollar (currenlty 1.5%)
Microeconomic policies - Answer Policies aimed at indvdl industries seeking toimprov efficiency & productivity of producers ⬆️ AS by
⬇️ G&S produced at Costs + ⬆️ Efficiency = shifts AS curve... - Answer = shifts AS curve to the right = ⬇️ Prices ⬆️
Allocative efficiency - Answer The economy's ability to shift resources to where they aremost valued and can be used most efficiently
Technical efficiency - Answer The economy's ability to max lvl of output for a givenquantity of inputs
Dynamic efficiency - Answer The economy's ability to shift resources btwn industries inresponse to changing patterns of consumer demand
Deregulation - Answer Removal of legislation& other rules that constrain the operation of
market forces. Aims to improve the efficiency of industries Deregulated markets since the 1980s - Answer Financial mkts & services TelecommunicationElectricity, gas, aviation & agricultural industries
Financial deregulation took place... - Answer ...in the 1980s to ⬆️ efficiency & competition Deregulation involved - Answer Floating the dollarRemoval of RBA direct control Removal of barriers to foreign banks entering Aus Agricultural deregulation involved - Answer Removing gov/ industry cooperativemonopolies on produce & farmers given new incentive to innovate & diversify their product Aviation industry deregulated in... - Answer ... 1990, w/ QANTAS now facing competitionfrom other airlines
Telecommunications industry deregulated in... - Answer ...1990s, new businesses anddramatically ⬇️ Costs
Workable competition - Answer The govs objective to achieve max lvl of comp within anindustry that is comparable w/ the mrkt structure and spec condtns of the industry
Monopolisation - Answer Occurs when a firm uses it's dominant mrkt pos to eliminatecomp
Price discrimination - Answer Occurs. When a firm sells the same g/a in diff mkts at diffprices (no diff in costs)