Economy & GDP
What does GDP stand for?
Gross Domestic Product
Name the four stages of the business cycle.
Expansion, Peak, Contraction, Trough
What is economic policy?
Actions used to manage and influence the economy.
What are the two main tools of fiscal policy?
Taxation and government spending
What does RBA stand for?
Reserve Bank of Australia
What does GDP measure?
The total goods and services produced in an economy.
During which stage are businesses generally hiring more workers and households spending more?
Expansion
Name the two main types of economic policy studied this unit.
Fiscal policy and monetary policy
What is a budget deficit?
When the government spends more than it earns/collects.
What major interest rate does the RBA set?
The cash rate
What is GDP per capita?
GDP divided by the population.
What usually happens to employment during a contraction?
Businesses employ fewer workers / unemployment can rise.
Name three major goals of economic policy.
Economic growth
controlling inflation
reducing unemployment
What is the difference between an expansionary and contractionary budget?
Expansionary increases spending/cuts taxes; contractionary reduces spending/increases taxes.
What usually happens to borrowing when interest rates rise?
Borrowing becomes more expensive.
Country A has a larger GDP than Country B, but Country B has a higher GDP per capita. What could this suggest?
Country B may produce more economic output per person / have a smaller population.
The economy has strong spending, high employment and rapidly rising prices. Which stage of the business cycle is it likely approaching?
Peak
Which policy would involve changing taxes: fiscal or monetary policy?
Fiscal policy
The economy is in recession with high unemployment. Should the government consider an expansionary or contractionary budget? Why?
Expansionary—to increase spending and economic activity.
Inflation is well above the 2–3% target. What could the RBA do, and why?
Raise the cash rate to reduce borrowing and spending and help slow inflation.
Why might GDP per capita be more useful than total GDP when comparing the living standards of two countries?
It accounts for population size and gives a better indication of economic output per person.
Businesses are closing, unemployment is rising and consumer spending is falling. Explain where the economy is likely to be in the business cycle.
Contraction moving towards a trough.
Inflation is high but unemployment is also increasing. Why might this make economic policy difficult?
A policy that reduces inflation may slow the economy further and increase unemployment.
The government cuts taxes and builds $10 billion of new infrastructure. Explain two effects this could have on the economy.
Could increase household spending, create jobs, increase business activity/economic growth, but potentially increase inflation or the deficit.
The RBA cuts the cash rate significantly. Explain the chain reaction this could have on:
borrowing
spending
businesses
employment
Cheaper borrowing → more spending/investment → greater business activity → potentially more hiring/employment.