Economic Indicators

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Economic Indicators by Mind Map: Economic Indicators

1. 2.1 Economic Growth

1.1. Definition: A sustained increase in productive capacity overtime

1.2. Measured by GDP (Gross Domestic Product), To be able to compare year to year, it is important to use real GDP

1.2.1. Real GDP takes account of inflation (i.e. sustained increase in the general level of prices)

1.3. Lagging indicator – based on quarterly data so need to look back after the ABS has collected the data

1.4. Caused by an increase in aggregate demand AD = C + I + G + (X – M)

1.5. Economic growth = more wants satisfied ∴ improved standard of living

1.6. Currently (March 2020) 1.7% - below long-term trend (3% - 3.25%)

1.6.1. - increased employment - higher income and profit - increased spending and investment

1.6.2. - may lead to inflation - environmental damage

2. 2.2 Consumer Spending

2.1. Definition: Consumer spending is expenditure by the household sector. Measured by retail sales and consumer sentiment (i.e. consumer confidence)

2.2. Current indicator (also a leading indicator) – measured monthly

2.3. Fall in income tax payable – (Govt

2.4. Policy aimed at increasing aggregate demand) but instead of consumption increasing, there has been a tendency for growth in the household savings ratio

2.5. Consumer spending is a good indicator of confidence in the current time period, but also indicates future consumption

2.6. Consumption growth = lower in recent quarters than before the onset of headwinds on the economy (e.g. slower domestic economic growth) due to slow down in China, drought, flood, bush fires and Coronavirus = less consumer confidence.

2.7. Consumer sentiment index (Jan 2020 lower level at 93.4 down from 95.1 in December 2019)

2.8. Current level of growth in consumption = 1.2%

3. 2.3 Inflation

3.1. Definition: The sustained increase in general level of prices over a period of time (usually one year)

3.2. Types of Inflation

3.2.1. COST

3.2.1.1. The cost of inputs increases the costs of production and this flow on to an increase in the price of the product

3.2.2. DEMAND

3.2.2.1. Businesses increase prices as a result of increased demand for the product.(demand greater than supply)

3.2.3. IMPORTS

3.2.3.1. Inflation overseas increases price of imported products

3.3. High inflation = low spending, low growth (and vice versa)

3.4. Measured by Consumer Price Index (CPI) = change in price of a “basket” of goods and services that account of a high proportion of expenditure by the urban population in a typical week.

3.5. Ideal level = 2-3% targeted at this rate by the RBA. ∴ RBA adjusts the cash rate (i.e. base interest rate that the banks pay to borrow funds from the overnight money market) to achieve the level of inflation that will not distort consumer and business purchasing and investment decisions.

3.5.1. i.e. when inflation rises above 3%, they’ll increase the cash rate to contract consumer spending and business investment and when inflation is below 2% RBA will decrease the cash rate to encourage consumer spending and business investment.

3.6. Current level = 1.9%

4. 2.4 Wages

4.1. Indicator of how much people earn

4.1.1. ∴ Increase Wages --> higher standard of living (Wages are the major cost of production to businesses) ∴ Increase wages --> so firms pass on the higher costs to the consumers in the form of higher prices (inflation)

4.2. Measured by AWOTE (Average Weekly Ordinary Times Earnings)

4.2.1. Indicates change in wages excluding overtime and penalty rates

4.3. Wage-price spiral = wage increase ∴ price increase ∴ demand higher wages

4.4. Minimum wage = lowest weekly earning

4.4.1. Australia has one of the highest in the world (19.49/hour or $740.80/week) - July 2019

4.5. Current level of wage growth = ‘flat’ (2.2%)

5. 2.5 Unemployment

5.1. UNEMPLOYED: Individuals in the labour force who are not employed but are actively looking for work and are available to start

5.2. UNDEREMPLOYED: Employed people who'd like to work more

5.3. LABOUR FORCE: Employed+unemployed

5.4. PARTICIPATION RATE: Proportion of working age population who are in the labour force

5.5. UNEMPLOYMENT RATE= Number of unemployed persons / Labour force (employed + unemployed) X 100

5.6. - Current unemployment rate = 5.3% - Current underemployment rate = 8.8% - Current indicator – data collected monthly