VCE Economics Unit 1 Area of Study 2

Gross Domestic Product (GDP): The figure used to measure a countries’ economy Gross=Total Domestic=Local Product=Item that is made or created

GDP Per Capita: This figure is arrived at dividing the GDP of a country by its population. It helps to give a better idea of the standard of living in a country.

What are advantages of growth in the Australian Economy? What are disadvantages of growth in the Australian Economy?

The Business Cycle

Expansion: This is when the level of national production is rising between one year and the next Peak: This is when national production has reached its highest level Boom: This is when the level of economic activity is too high and economy is overheating, resulting in inflation Contraction: This is when the level of national production is falling between one year and the next

The Business Cycle Trough: This is when the national production has fallen to its lowest level in the economic cycle Recession: This is when the level of national production falls and there is a negative rate of economic growth measured over two or more consecutive quarters Depression: This is a big recession and occurs when the level of national production has fallen dramatically over a period of time

The Business Cycle

Questions: Check your understanding pg. 64 #3 Applied Economic Exercises pg. 93 #2

How do we grow GDP? How do we help to increase our GDP in Australia?

If we have our current Equilibrium Price, how do we move it UP? Price Level Total Output

1. Increase Demand

2. Increase Supply

Aggregate Supply-Side Factors: These factors alter the resources available for production, along with business costs and profits, and the economy’s long-term productive capacity or potential level of GDP. Aggregate Demand-Side Factors: These factors alter the levels of national spending on GDP and the extent to which the economy’s productive capacity What affects GDP?

1. Develop our natural resources Aggregate Supply Factors

2. Increase our labour resources a.Immigration b.Having more kids c.Increase retirement age d.Increase spending on Education Aggregate Supply Factors

2. Increase our labour resources e. Labour Productivity: The efficiency of workers measured by the value of GDP per hour worked Aggregate Supply Factors

Question: What does this graph tell us about Australian workers? Aggregate Supply Factors

3. Government investment in infrastructure a.Economic Infrastructure: Construction of railways, roads, dams, NBN b.Social Infrastructure: education, healthcare Aggregate Supply Factors

4. Government Policy or Reforms a.Labour market reform b.Promoting competition c.Lower Tax Rates d.Trade liberalism Aggregate Supply Factors

5. Climate Change

Aggregate Supply Factors Questions: Check your understanding pg. 69 #1,2 Applied Economic Exercises pg. 94 #3

Aggregate Demand Factors Inflation: The rise in price of goods and services over a period of time. A healthy amount is around 2%. Unemployment: The amount of people, usually a percentage, who are out of work and actively seeking work. A healthy amount is around 5%. Interest Rates: The percentage of money charged for its use. Three Terms to Know:

Aggregate Demand Factors

GDP= C + I + G + (X-M) C= Consumer Spending: Household spending that is designed to help satisfy our needs and wants I= Private Investment Spending: Spending by businesses on machinery and building used to help make other goods and services G= Government Spending: Government outlays that are designed to help meet the needs and wants of the community X= Exports: The amount spent by people overseas on Australian-made goods M= Imports: The amount spent by Australians on foreign-made goods and services

Aggregate Demand Factors

Consumer Spending can be affected by: a.Disposable Income- Money that is available for spending after things like tax b.Consumer Confidence- Optimism about future household income and employment future c.Interest Rates- Higher rates encourage saving, lower rates encourage spending d.Rate of population growth- Immigration can lift consumption e.Budgetary policies – Decisions such as cutting income tax

Aggregate Demand Factors Private Investment Spending a.Business Confidence- The willingness of business to invest in new plant and equipment b.Interest Rates c.Company tax rates- Money paid to the government by firms on income

Aggregate Demand Factors Government Spending a.Unemployment- As unemployment rises, so does (G)overnment spending b.Inflation- Governments will tailor their spending to help combat inflationary pressures c.Population Growth- As the population grows, so will government spending d.Political- Election promises or political pressures may cause government spending to increase or decrease

Aggregate Demand Factors Exports a.The exchange rate- If the Australian Dollar is worth more, foreign buyers will be able to purchase less Australian goods b.Overseas economic conditions- Recessions or booms in other countries will increase the demand for Australian goods c.Natural disasters/Severe weather events- Disasters in Australia or overseas will affect the demand for our products

Aggregate Demand Factors Imports a.The exchange rate- A rise in $AUD will make foreign goods more attractive. b.Local economic conditions- A local boom makes foreign goods more attainable. c.Consumer Confidence locally- Higher confidence in the economy will lead to more purchases of overseas goods. d.Inflation Rate- A higher inflation rate in Australia will make foreign goods more attractive

Aggregate Demand Factors Questions: Check your understanding pg. 76 #4 Applied Economic Exercises pg. 95 #4 (Except #1),