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ECONOMIC GROWTH: Definition: Economic growth is when there is a sustained increase in a countries productive capacity measured by increase percentage GDP over a period of time. Explain why is economic growth important to an economy? It is the key objective of government policy as it creates jobs, raises standards of living and makes it possible to satisfy more material wants. Outline the main factors that influence consumption and investment levels in the economy. Consumption is influenced by
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  ECONOMIC GROWTH:  Definition: Economic growth is when there is a sustained increase in a countries productive capacity measured yincrease percentage G! over a period o# time$  Explain why is economic growth important to an economy? It is the %ey o&ective o# government po'icy as it creates &os( raises standards o# 'iving and ma%es it possi'eto satis#y more materia' wants$ Outline the main factors that influence consumption and investment levels in the economy. Consumption is in#'uenced y:Consumer e)pectations on the #uture state o# the economy*eve' o# interest rates + e##ects the amount consumers can orrow ecause o# return they have to pay$ Thisthere#ore e##ects what they can spend$!istriution o# income on the economy$ The more e,uita'e the 'ower the average propensity to consumedue to having enough to save$ I# 'ess e,uita'e in income distriution( the - C wi'' e higher #or thosewith 'ow incomes as they spend most o# there income on essentia' goods and servicesIncome 'eve's and consumer pre#erences + degree o# M . and M CInvestment is in#'uenced y:The cost o# capita' e,uipment / This depends on interest rate 'eve's0changes( government po'icy changesto investment a''owances0ta) deductions( the price and productivity o# 'aour$1usiness e)pectations + e)pected product demand( genera' economic out'oo%( whether new innovativetechno'ogy has hit the mar%et and in#'ation 'eve's in the economy$.tate the 'ea%ages and in&ections e,uation:. 2 T 2 M 3 I 2 G 2 4Where .( T and M are 'ea%ages and I( G and 4 are in&ections  Explain the effect on the level of economic activity when a5 total leakage>total injections     decrease in economic growth as there is 'ess money in the economy 5 otal leakages!total injections     higher economic growth as more money is in the economy to #undhigher productivity$  Define the multiplier: The mu'tip'ier is the changes in aggregate demand that wi'' 'ead to a proportiona''y 'arge increase in G! $  Explain how the concept of the multiplier is related to our understanding of economic growth. Economic growth is caused y an increase in aggregate demand$ This -! increase resu'ts in higher growth o# nationa' income as a resu't o# the mu'tip'ier process tate the multiplier e#uation and how the multiplier co$efficient is determined. 6G! 3 % ) 6 -!% 3 7778777  M .  Discuss how the government may influence the level of aggregate demand: Macroeconomic po'icies can e used y the government in the short term$ Fiscal  + to increase -! the govt cou'd run an e)pansionary #isca' po'icy where there wou'd e an increase ingovernment e)penditure and a decrease in ta)ation revenue meaning more in&ections are in the economy$-'ternative'y i# the government wishes to decrease the 'eve' o# -! in the economy it can emp'oy acontractionary #isca' udget$ Monetary  + aims to smooth out short term internationa' usiness cyc'e #'uctuations$ The R1- can increaseaggregate demand y emp'oying an e)pansionary stance y decreasing interest rates to encourage consumer   spending$ -'ternative'y i# the R1- wishes to decrease aggregate demand it can increase interest rates todecrease spending and increase savingsMicroeconomic re#orms concentrate on 'ong term in#rastructure to indirect'y increase growth to a sustaina'e'eve'$ Competition policy  promote competition etween #irms to increase there e##iciency to increaseaggregate demand in the economy$ Labour market reforms  indirect'y in#'uence aggregate demand yincreasing the #'e)ii'ity and productivity o# the 'aour #orce 'eading to rea' G! increase$ In#rastructure po'icies and pu'ic sector re#orm don9t p'ay an important ro'e in increasing aggregate demand in the economy$However trade policies  imp'emented y the government improve our trade per#ormance$ They improvemateria' standards o# 'iving through i'atera' trade agreements which get us more imports( increasingconsumption and there#ore aggregate demand$ Trade po'icies to decrease protection 'ead to increasede##iciency and internationa' competitiveness o# industries meaning higher productivity and higher G! $  Discuss the positive and negative impacts of higher growth for the economy. External stability  + higher savings comes #rom the higher incomes generated due to growth$ Higher savingsmean 'ower C-! as there is 'ess #oreign det #rom orrowing #rom overseas$ 1T higher disposa'e incomesare generated #rom higher growth 'eading to higher aggregate demand #rom imports which are registered onthe 1oG. de#icit$ Higher growth 'eads to -! depreciation due to more consumers purchasing M ;moremoney in supp'y5$ !epreciation 'eads to having to pay ac% more interest on our #oreign det which has anegative impact on net income account o# C-!$ Environmental management  + as a resu't o# higher standards o# 'iving o# the economy an environmenta'conscience is gained$ However growth 'eads to increased use o# natura' resources to meet the higher aggregatedemand #or goods and services y consumers on higher incomes$ Individuals  + have higher rea' incomes meaning higher savings and higher standards o# 'iving$ However thegovernment ta)es higher incomes more$ Government  + can ta) more o# higher income meaning it is a'e to use revenue to provide etter socia' andeconomic in#rastructure$ However ta)ation is ta%ing money out o# the economy 'eading to s'ower growth$ Unemployment  + greater ta)ation y government e,ua's etter we'#are support #or unemp'oyed$ !ec'ine incyc'ica' unemp'oyment due to higher aggregate demand in the economy there#ore more &os$ 1ut there wi'' eincrease in structura' unemp'oyment due to techno'ogica' and structura' changes in industries to increasee##iciency$ Distribution of Income  + greater ine,ua'ity as rich reap growth ene#its$ .tructura' unemp'oyment usua''y#e't y 'ow s%i''ed 'ow income popu'ation$ However government9s progressive ta) system wi'' attempt to evenout ine,ua'ity$ Firms  + increase aggregate demand #or goods in the economy wi'' 'ead to higher revenue #or #irms withgreater opportunities to underta%e capita' investment to increase e##iciency$ However #irms may not e a'e to produce goods demanded y the pu'ic productive'y 'eading to demand pu'' in#'ation ma%ing #irms 'essinternationa''y competitive$ Inflation  + high demand and overuse o# natura' resources can 'ead to demand pu'' in#'ation$ Outline the main features of the international %usiness cycle. .ynchronisation o# growth rates o# economica''y integrated countries as a resu't o# g'oa'isation$ Has 'ed tog'oa' ooms and recessions  &riefly discuss how the current economic cycle compares with previous %usiness cycles. We are current'y in our 8< th  successive year o# growth in -ustra'ia ma%ing this one o# the 'ongest cyc'es o# growth on record with usua' economic cyc'e 'asting = years$ Our growth rate is current'y >$?@ up #rom the/8@ we had in 8AAB/A8 and down #rom the $=@ growth rate we had in DBBB$  ENIRONMENT-* M-N-GEMENT  Descri%e the term 'natural environment(  The natura' environment is the who'e interaction o# c'imate( soi's( p'ant and anima' 'i#e$  Discuss why environmental management is often at conflict with other o%jectives? Economic growth usua''y comes at the e)pense o# environmenta' management$ The concept o# mosteconomic o&ectives in the economy is to ma)imise the ene#its o# economic growth in the economy and toincrease the materia' standards o# 'iving #or its peop'e$ However #or economic growth to occur the economyneeds to ma)imise its resources ;natura' #actors5 to increase its productivity$ This 'eads to renewa'e and non/renewa'e resources$ roduction o# most goods 'eads to e)terna'ities which are usua''y negative such as po''ution and sa'inity #rom over #arming$ Economic o&ectives ta%e into account increasing materia' standardso# 'iving in the economy ut not the we'#are o# the environment that is needed to 'ive in$  Define the term 'ecologically sustaina%le development(: Concept o# maintaining a 'eve' o# ,ua'ity and growth that doesn9t resu't in 'ong term damage to theenvironment or dep'etion o# 'imited resources$  Descri%e what is meant %y a 'pu%lic good(  - pu'ic good is a good that cannot e e)c'uda'e to other memers o# society$ Everyone can en&oy the ene#its o# a pu'ic good even i# they haven9t paid #or it$  &riefly examine the economic pro%lem of 'free riders(  Free riders use pu'ic goods without paying #or them ut can9t e e)c'uded #rom using them  )dentify what methods governments may use to control pollution levels. Research and deve'opment into using means o# energy that don9t create po''ution eg$ .o'ar and windenergy$Trading permits #or po''ution$ .etting a ma)imum po''ution 'eve' #or each industry$ Companies not wi''ingto cut po''ution emissions in that industry have to trade0uy permits o# #irms in the industry who arewi''ing g to cut po''ution$Ta) on car petro' to encourage pu'ic transport use to reduce car emissions*egis'ative re,uirements on po''ution #or producers$  Explain what is meant %y an externality giving an example -n e)terna'ity is a spi'' over e##ect o# economic activity which is not measured in the production costs or revenue$ It is most 'i%e'y to e a negative e)terna'ity such as air po''ution ut may e a positive e)terna'itysuch as increase emp'oyment opportunities$ Outline how market failure occurs in relation to managing the environment. Mar%et #ai'ure is the #ai'ure to measure a'' the costs o# production especia''y in society in the #orm o# e)terna'ities$ -s a resu't the mar%et price o# the good is 'ower than the optima' socia' price 'eading tooverproduction o# these goods( hence environmenta' damage$  Discuss what is meant %y the distinction %etween 'renewa%le( and 'non$renewa%le( resources. Renewa'e resources are those who natura''y rep'ace themse'ves over time$ Non/renewa'e resources are'imited in there numers as they can9t e regenerated in a short time #rame$ It is important these D categoriesare distinguished #rom each other as the e)p'oitation o# non/renewa'e resources now wi'' mean there won9t e any avai'a'e #or #uture generations$ Current'y <0 our energy re,uirements uti'ise non/renewa'eresources$  INF*-TION  Define 'inflation(  Increase in the genera' 'eve' o# process in the economy  Explain how the inflation rate is calculated. The Consumer rice Inde) ;C I5 is the measurement o# movements in retai' prices o# a as%et o# weightedcommodities that ma%e up a signi#icant proportion o# an average wage earner9s househo'd e)penditure$ Therate o# in#'ation measures any changes in C I over the year indicating whether there has een an increase or decrease in the cost o# 'iving$Rate o# In#'ation 3 C I D  / C I 8  8BB C I D      8 Outline the main causes of inflation a5!emand pu'' in#'ation + when aggregate demand is growing whi'e the economy is nearing its supp'ycapacity so that the higher demand spi''s over into higher prices rather than more output$ May e aresu't o# insu##icient supp'y o# resources 5Cost push in#'ation + when there is an increase in production costs ;eg higher oi' prices or unions pushing #or higher wages5 that producers pass on to consumers in the #orm o# higher prices thusincreasing the rate o# in#'ationc5Imported in#'ation + occurs when there is an increase in the price o# imports either due to in#'ation inthe economies o# out trading partners or ecause o# a depreciation o# the -! which resu'ts in higher  prices to consumers #or imports o# the import inputs used in manu#acturing o# domestic goods$d5In#'ationary e)pectations + when in#'ation may e perpetuated y the e)pectations o# wor%ers or #irmsthat it wi'' occur$ Eg i# wor%ers e)pect higher in#'ation rates they may demand higher wages tocompensate #or rates$ This 'eads to higher production costs which mean cost push in#'ation toconsumers$  Discuss the reasons for *ustralia(s low inflation rates over recent years. 85se o# R1- in#'ation targeting + R1- egan to target in#'ation using monetary po'icy in 8AAD and hassince een a'tering interest rate 'eve's to %eep prices in 'ine o# the D/>@ target$ D5ery 'itt'e wage growth over the past decade due to decreased union power and pressure$>5.trong productivity growth has resu'ted #rom microeconomic re#orms and the increased competitive pressures that go with them$  )dentify the type of inflation most likely to occur if %usinesses raise there prices due to higher wage costs. Cost push in#'ation  Explain the role of inflationary expectations in determining the level of inflation. I# wor%ers e)pect higher in#'ation rates they may demand higher wages to compensate #or rates$ This 'eads tohigher production costs which mean cost push in#'ation to consumers$  Explain why it is difficult for government policies to successfully address full employment and price sta%ilityat the same time. Having simu'taneous #u'' emp'oyment and price stai'ity de#ies the princip'es o# supp'y and demand$I# there is strong aggregate demand in the economy it wi'' 'ead to higher emp'oyment opportunities to meetthe demand$ However higher emp'oyment means higher production costs there#ore 'eading to cost pushin#'ation$ This cou'd e caused y the government imp'ementing a #isca' de#icit in an attempt to stimu'ategrowth$ I# government then wanted to decrease the rate o# aggregate demand it wou'd emp'oy acontractionary #isca' po'icy$ There wou'd e 'ess demand #or goods 'eading to e,ui'irium price ;de#'ation5 ut this wou'd resu't in increase cyc'ica' unemp'oyment as there is no demand #or 'aour$ The con#'ict etween #u'' emp'oyment and price stai'ity is i''ustrated y the hi''ips curve$$
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