Calculations
An economy has the following leakages:
- Imports ($20)
- Tax ($30)
- Savings ($90)
For the economy to be in equilibrium, injections must equal...?
$140
Define the economic problem.
There are unlimited wants but scarcity in resources.
A synonym for peak and a synonym for contraction.
Boom; downswing
State the law of demand.
As prices increase, demand contracts/decreases.
State the law of supply.
As the price of a product increases, firms increase supply to increase their profits.
The labour force of a country is 76,000. There are 11,200 people looking for work but unable to find any.
What is the unemployment rate?
14.74%
Define opportunity cost:
The cost of the option foregone; the cost of giving up the next best alternative.
What causes a downswing? (two steps)
(A)..... leading to.... (B)
Possible answers:
Low consumer confidence leading to less consumption.
Less consumption leading to less output
Less output leading to high unemployment.
State TWO other factors affecting demand.
trends, price of alternatives, income
What's the difference between a contraction in supply and a decrease in supply?
Contraction: prices fall so a movement along the curve.
Decrease: a non-price factor changes so the curve shifts left.
M = 30; X = 40; G = 70; S = 20; T = 50; I = 60.
This economy is... <shrinking, growing, equilibrium>?
Growing
externality
Three features of a trough period are...
- high unemployment
- low consumption
- high government welfare/transfer payments
- low inflation
- low output
- low AD
What happens to demand for Adidas shoes when the price of Nikes drops?
Why?
Demand for Adidas will decrease as consumers prefer to purchase Nikes which are less expensive.
Apart from price, what else affects supply? How?
Price of production: increasing price of production decreases profits for firms so they reduce supply
In Year 1, the economy's GDP was $120,500.
In Year 2, it was $138,400.
Calculate the economic growth rate between Year 1 and Year 2.
14.85%
The roles of the government in the circular flow model are....
Taxing and spending
Explain how and when inflation happens.
Inflation happens in a boom because there is too much aggregate demand for the limited supply. Aggregate demand is high due to higher incomes for households and higher profits for firms leading to increasing investment. This causes prices to increase.
What happens to demand for batteries when the price of kid's toys increases? Why?
Demand for batteries should decrease because there will be fewer children's toys purchased. If people aren't buying the toys, they don't need as many batteries.
How is the goal of the firm sector different to the goal of the household sector?
The goal of the firm is to maximise profits so they want prices to be high.
The goal of the household sector is to spend as little as possible so they prefer prices to be low.
CPI in Year 1 is 110, in Year 2 is 114 and in year 3 is 119.
What was the inflation rate between Year 2 and Year 3?
4.39%
Name the 5 sectors in the CFM and state their "flows".
Households: consumption and income
Firms: output and profits
Financial: savings and investment
Government: tax and spending
Overseas: imports and exports
What does the government do during a recession to grow the economy? (2 things, explained briefly).
1. Increased spending on social welfare to support those who are unemployed to live a decent standard of living.
2. Start a project to create more employment opportunities and inject funds into the circular flow.
3. Give subsidies to businesses to reduce their costs and help them retain employees.
4. Give money to households (vouchers) to help them consume more.
5. Reduce taxes to increase disposable income to encourage consumption spending.
Draw and label a diagram showing what happens to the demand for and price of backpacks when school starts.
Criteria: heading, axis labelled, equilibrium price and quantity marked, THEN movement of/along curve (you choose), new price and quantity marked.
Criteria: heading, axis labelled, equilibrium price and quantity marked, THEN movement of/along curve (you choose), new price and quantity marked
Draw and label a diagram for: the price of electricity has decreased.
Criteria: heading, axis labelled, equilibrium price and quantity marked, THEN movement of/along curve (you choose), new price and quantity marked
Criteria: heading, axis labelled, equilibrium price and quantity marked, THEN movement of/along curve (you choose), new price and quantity marked