The Business Cycle
Contraction
Expansion
Government intervention
Circular Flow
Taxation and Government Spending
100
Define the business cycle.
A cycle or series of cycles of economic expansion and contraction.
100
What is the phase of a business cycle that occurs after a peak and before a trough?
Contraction of economy
100
What is the phase of a business cycle that occurs after a trough and before a peak?
Expansion
100
How is inflation measured by the reserve bank?
Through looking at the prices of the same range of goods and services compared to last year.
It is measured by using the Consumer Price Index (CPI)
100
Name the 5 sectors of the Circular Flow model
Households, Business, Financial, Government, Overseas
100
Provide three examples explaining how government spending helps people within the economy?
Creates jobs, provides infrastructure, protects community, any other relevant examples.
200
Define Peak
When the expansion reaches the top and transitions into a contraction phase
200
What does the Reserve Bank do to start a contraction in the economy?
Increase the Cash Rate (increasing interest rates)
200
What does the Reserve Bank do to encourage expansion?
Reduce the Cash Rate (lowering interest rates)
200
Why does the government not target 0% unemployment?
Because their is no room for economic expansion through new projects and flexibility in the workforce.
200
Define an injection
Transactions that put money into the economy.
200
Identify the top three government expenses.
Social Security and welfare
Health
Education
300
Define trough.
The end of a period of declining business activity and the transition to expansion.
300
What type of policy is the RBA in charge of controlling?
Monetary policy (through the Cash Rate)
300
An indicator of a peak beginning
What is when companies start to report flat revenues?
300
What is the main policy area the government uses to control the economy?
Fiscal Policy through the Budget
300
Provide an example of a injection
Any relevant example
300
Identify the top three government revenues.
Individual tax income
Company tax income
GST and other sales tax income
400
What is it called if the GDP turns negative?
Recession
400
What impact would an increase in interest rates have on households? explain your decision
Households are likely to save more money in the bank rather than spending money. This is because they get a better return on money in the bank and may have higher mortgage payments they need to save for.
400
Identify five characteristics of a Boom
High inflation
High aggregate demand
Rapid employment growth
High levels of employment
Increases in household incomes and spending
Higher production
Higher interest rates
Rising inflation rates because businesses increase prices to make greater profits
400
What are governments aiming to do by helping people in society through paying them welfare payments. Include some examples of payments in your response.
The government are trying to provide support individuals with different needs in order to get equality for all members of society. These payments are often short term to help someone through a degree, injury, illness or a period of unemployment.
400
Define a leakage and include an example
Transactions that take money out of the economy.
Any relevant example.
400
Explain the difference between a direct and indirect tax including an example.
Direct tax is a tax levied on companies, as well as individuals, that cannot be passed on to another taxpayer. The taxpayer is liable for the tax payment, which is collected directly by the government. (Income Tax)
Indirect tax is a tax that can be passed on to another entity or individual. Indirect taxes are levied on goods and services. The supplier or manufacturer passes on the tax to the consumer, who is the one ultimately paying the tax. The supplier or manufacturer collects the tax and then remits it to the government. (GST)
500
Draw a fully labelled diagram displaying the business cycle.
500
Identify five characteristics of an economic contraction.
Low aggregate demand
High unemployment
Low employment growth
Low interest rates
Declining GDP (Gross Domestic Product)
Unemployment levels increase due to drop in business revenue
Inflation is steady or falls due to lower consumer spending
Wages stationery due to business costs and job insecurity
Consumer spending decreases due to increased savings because of job insecurity
500
On average, how long do expansions last
What is 3 to 4 years?
500
What are the three main economic indicators governments use to measure the economy, how are they measured and what are their benchmarks?
Economic Growth - Gross Domestic Product (GDP) - 3-4% increase per annum
Inflation - Consumer Price Index (CPI) - 2-3% increase per annum
Unemployment - Unemployment Rate - 4%
500
Draw the 5 sector circular flow model
500
Explain why governments may increase taxes on some individual products by providing an example.
Tobacco, alcohol, sugar or any other relevant.