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Assessment Terms Analyse Break things into component parts, determine the distinguishing factors, accept or reject "things" based on accepted standards. Apply Using skills and knowledge to further explain a specific concept or situation. Assume Take it for granted that it occurs. Calculate Work out. Clearly indicate Show. Compare Look at the similarities and differences between two or more ideas. Complete Finish off/fill in. Consequences Things that happen because of a decision. Construct Work out/make. Contrast Note differences between ideas. Define Provide a definition of an idea or concept. Demonstrate Show an understanding of an idea or concept. Describe Make note of the features of an idea or concept, i.e. "what happened?" Distinguish between What's different? Evaluate Give the advantages, disadvantages and draw conclusions. Explain State why, demonstrate using examples, use what you know to find solutions to questions, i.e. "why did it happen?" Give Tell me in a few words. Identify Give an example. Illustrate Use an example to write about. Influence Something that impacts on an event or decision. Investigate Analyse and explain an idea or event. Justify Give reasons for an occurrence. Outline Give an overview of an idea or event. Recognise Pick out an idea or concept from an event. Select Choose an appropriate idea. Shade and label . Colour in and mark on the graph. State Tell me in a few words. Graphing Terms Suggest Give a reason. Column Graph / Bar Graph Graphical display of discrete data using bars (ie. bars are separated). At level three of the syllabus students are expected to be able to design and construct compound column graphs. eg. the budget presented as a column graph with spending categories separated but columns (with no gaps) within each category showing the amount spent in this area over number of years . Histograms Graphical display of grouped continuous data using columns with no gaps. Line Graph Graphical display of (usually) time series data joined by a line. At level three of the syllabus students are expected to be able to design and construct multi line graphs using 2 different scales on the vertical axes. Pictogram Pictorial display of data. Pie chart Circle with relative segment sizes representing percentages. Scatter Diagram Graphical display of two sets of data against each other. 2.1 Inflation Deflation Disinflation General Price Rise Inflation Price Rise in a particular market Quantity Theory of Money (exchange) AS-AD Model A fall in the general Price level e.g. When the change in the general price level is negative The rate of inflation FALLS i.e. (the general level of) prices are rising but at a slower rate than the year before e.g. Inflation rate in 2001 was 3.1% but in 2003 it was 2.5% Occurs when prices in an economy on average rise e.g 10% increase in CPI A persistent rise in the general level of prices over the medium term. e.g if products rise on average by 10% then there is 10% inflation The price of ONE good or service rises e.g. the price of petrol rises 5c a liter MV=PQ The equation is saying the value of money stock (M= the money in circulation) multiplied by the number of times money circulates through the economy (V= velocity of circulation) must equal the value of goods produced (=GDP). The value of goods is the number of goods produced (Q) multiplied by the price (P) Price Level Aggregate Demand and Aggregate Supply model AS PL AD Output (Y) and employment Appreciation Cost Push Inflation Real Output When the NZ Dollar increases in value i.e. a $NZ will buy more foreign currency Note: $NZ getting stronger Inflation caused by an decrease in aggregate supply i.e. inflation caused by rising production costs Cost Push Inflation on AS-AD Model Price Level Cost Push Inflation AS PL1 PL AD Real Output Costs of Production Demand Pull Inflation Demand Pull Inflation on ASAD Model The dollar amount producers pay for the resources used to produce goods and services Inflation caused by an increase in aggregate demand e.g. inc. C due to and inc. in household confidence Price Level Demand Pull Inflation AS PL1 PL AD Y Depreciation Inflationary Expectations Money Flows Output Gap Fiscal Policy Y1 AD 1 Real Output Occurs when the NZ dollar decreases in value i.e. a $NZ will buy less foreign currency The $NZ is getting weaker The rate of increase in the general price level (ie inflation) anticipated by the public in the period ahead. Anticipated inflation encourages households to buy TODAY increasing current inflation levels Payments for goods and services purchased e.g money payment for goods bought and wages for labour supplied The difference between the economys actual output and the level of production it can achieve with existing labour, capital and technology without putting sustained upward pressure on inflation The use of Government income and expenditure policies to achieve economic objectives Fiscal Policy – Contractionary Fiscal Policy – Expansionary Monetary Policy Monetary Policy – loose Monetary Policy – tight Official Cash Rate - OCR PTA 2.2 Economic Growth Economic Growth Full Employment on PPC(F) When govt decreases spending or increases taxes or both This will cause a decrease real GDP (dec. AD) When govt increases spending or decreases taxes or both This will cause an increase in real GDP (Inc AD) The controlling of the money supply and credit availability in an economy so as to achieve certain economic objectives e.g OCR and interest rates to maintain price stability Implementing monetary policy to expand the economy and so promote growth etc. Implementing monetary policy to contract the economy and so reduce inflation The overnight or cash rate set by the Reserve Bank of New Zealand (RBNZ) which determines the rate at which banks can borrow and lend overnight cash Policy Targets Agreement – an agreement between the Minister of Finance When the total level of production and real income in an economy rises This means that people living in that economy are able to satisfy more of their needs and wants Consumer Goods On Frontier = full employment of resources Capital Goods Gross Domestic Product (GDP) Income Total Market value of all final goods and services produced by an economy in a year A FLOW of money earned by the owners of resources Ie labour earns wages, natural resources earn rent, capital earns interest, enterprise earns profit Net Social Welfare Nominal GDP Productive Capacity Real income/Real GDP Unemployment or underutilisation of resources on PPC A countries overall well-being. It includes both economic (or material) as well as non-economic (quality of life) indicators of performance The total market (money) value of all final goods and services produced by an economy in one year The maximum possible output of an economy with current resources and technology Ie an economies PPD Note: if productive capacity increases the PPC shifts out BUT the current level of output may not change Nominal GDP divided by a price deflator and so a measure of output changes in an economy in a year Note: Nominal GDP=PxQ Real GDP = nominal GDP/P = PxQ/P = Q Consumer Goods Inside frontier = unemployment or underutilisation of resources Capital Goods Wealth Aggregate Demand Aggregate Supply A stock of assets owned by an individual household or other group. It can also be defined as our NET WORTH The total of all planned expenditure in an economy at each level of prices. Aggregate Demand is the total level of demand in th eeconomy. IT is the total of all desired expenditure at any time by all groups in the economy. The main groups who spend are consumers (consumtion), firms (who spend on investment), government (government expenditure) and overseas (exports and imports) Therefore: AD=C+I+G+(X-M) Aggregate Supply is the total of all planned production at each level of prices. Aggregate supply is the total quantity supplied at every price level. It is the total of all goods and services produced in an economy in a given time period Capital Goods Man made factors of production used to produce other goods and services. The Circular flow Model A diagram showing flows between different sectors of the economy – households, government, producers, the financial sector, the overseas sector The quality or skill level of human resources which can be improved by better education or workplace training Human Capital Increase production leads to Economic Growth on PPC Consumer Goods B A Capital Goods Increased Productive Capacity leads to Economic Growth on PPC Consumer Goods B A Capital Goods Investment Production Production Possibility Curve (Frontier) Resource Endowments (Factor Endowments) R+D The production/purchase of capital goods/ man-made resources to be used in the production process - also called capital formation The process of turning inputs into outputs Ie it is the total output of a firm/country A line on the production possibility curve model showing the various output options that are possible is all resrouces and technology are fully utilised These are the natural resources or ‘gifts of nature’ available to an individual/economy Research and Development By funding R+D and by spending on their own R+D the govt can help create innovation and new industries that could lead to growth through increased productivity or the opening of new markets Regional Development Resource allocation Supply side policies Trade Union GDP Deflator Real GDP Per Capita Standard of Living Sunrise industries Sunset industries The govt can inject money in to regions that are going through a depression phase that are stagnant or are key areas that could lead to strong economic growth in the future This can take the form of tax incentives, setting up the infrastructure needed to entice business in to the area or in the form of cash grants to help entrepreneurs to start up business The appointment of factors of production among the different uses. This rises as an issue because the resources of a society are in limited supply whereas human wants are usually unlimited and because any given resource can have many alternative uses. In free-enterprise systems the primary mechanism through which resources are distributed among the uses most desired by consumers is the price system Policies designed to increase supply curve Ie policies that reduce costs of product (like removing red tape) Or Increase productivity (eg training schemes aimed at improving skills of workers) A group of employees organised to exercise some influence over the labour market They are organised principally for the purpose of increasing wages and improving conditions Nominal GDP X 1000 Real GDP Real GDP divided by the population of the country The overall quality of life that people enjoy. Usually refers to individuals/ countries per capita income but also takes account of additional conditions that matter for a person’s or household’s well-being such as leisure or the quality of the environment A new industry that is exporected to be a strong sector in the future The secotrs that sunrise industries replace are sometimes referred to as sunset industries eg the VCR industry in the 1990’s was overtaken with the sunrise DVD industry 2.3 International Trade Current Account Exports Free Trade Imports International Trade Offshore Services Onshore Services Protectionism Quota Regional Trade Tariff 2 country S/D Model Absolute advantage Appreciation Comparative Advantage Depreciation A balance in the balance of payments recording current transfers. Calculated by adding Balance of goods + balance of services + balance on income + balance of current transfers Goods and services made in NZ but sold to buyers from another country When the sale or purchase of goods and services occurs without direct intervention by government Goods and services made overseas and sold to NZers Exchanging goods and services between countries Services provided by a country (exporter) to buyers overseas e.g. Air NZ flying German tourists from Germany to the US Services provided by a country (exporter) to foreign buyers within it’s own shores Eg US tourists bungy jumping in Queenstown When a government intervenes (barriers) in the exchange of goods or services Eg subsidy, tarrif, quota Limit on the number of imports that can be brought in to a country giving local producers chance to supply the local market Exchanging goods and services within a country eg Bluff Oysters sold in Chch Tax imposed on imports which raises their price making domestic products more competitive This illustrates trade between 2 countries – refer to page 159 in green book Being able to produce a product using fewer resources When the NZ Dollar increases in value i.e. a $NZ will buy more foreign currency Note: $NZ getting stronger Being able to produce a product or service for a lower opportunity cost When the $NZ decreases in value Ie a $NZ will buy less foeign currency Note: $NZ getting weaker PPC showing basis for trade Bottles Of Wine England Bottles Of Wine Portugal CPC PPC Specialise M X A B X CPC S/D Forex Graph Bolts of Cloth M Bolts Cloth Consumption Possibility Curve – shows possible consumption Exchange Rate Exchange Rate S$NZ NZ Ex Rate e.g. $1=$Aus .90 D$NZ Q Subsidy Payout by govt to producers that lowers the price to consumer / raises revenue received by producer World Price The rpice that countries agree to trade with each other at. Note: in 2 country case this occurs where X=M in others (eg price taker) it occurs at the world market equilibrium Australia, New Zealand Closer Economic Relations. A free trade agreement signed between NZ and Oz in 1983 CER or ANZCER Deregulation EU Fair trade The reduction of government from the market place and is based on the assumption that resources are better allocated if the free market does it rather than govt European Union The most recent development of this group of European countries is the ‘euro’ a single currency used by all member countries An alternative approach to conventional international trade. It is a trading partnership which aims at sustainable development for excluded and disadvantaged producers. It seeks to do this by providing better trading conditions by awareness raising and by campaigning. Fixed exchange rate Flexible exchange rate Free Market Policy Free Trade Infant Industry Argument Operating Balance WTO Balance of Payments Balance on current transfers Balance on goods When the exchange rate of a currency is not allowed to fluctuate against another (the exchange rate remains constant) Typically under fixed exchange rate regimes currencies are allowed to fluctuate within a small margin. They require central bank intervention to maintain the fixed rate NOTE: NZ has not had a fixed exchange rate since March 1985 A system in which the value of a country’s currency is determined by market forces. Note: also called a floating exchange rate NZ has had this sort of system since 1985 The idea of reducing government intervention. It is based on the assumption that resources are better allocated if the free market does it rather than the govt When the sale or purchase of goods and services occurs without direct intervention by govt The view that ‘temporary protection’ for a new industry or firm in a particular country through tariff and non-tariff barriers to imports can help it to become established and eventually competitive in world markets in which case the protective measures will no longer be needed. The difference between govt revenue and govt expenses in a given year Eg R>Exp = operating surplus R<Exp = operating deficit World Trade Organisation Established in 1995 as the successor to GATT (the General Agreement on Trade and Tariffs). WTO promotes fair competition and trade development and administers various multilateral trade agreements An account that records transactions between one country and another Made up of current a/c capital a/c and financial a/c A deficit = more payments than revenues A balance in the current a/c. This is current transfers inflows less current transfers outflows.Transfers occur when resources are provided with no exchange of goods or services e.g.foreign aid, benefits + pensions received from o'seas govts. A balance in the current a/c. This is goods exports (credits) less goods imports (debits).Sometimes called merchandise trade balance. Balance on income A balance in the current a/c. This is income(credits) less income (debits).Income refers to earning from the use of factors of production (land, labour and financial capital).It includes investment income derived from ownership of international financial assets - e.g.dividends, interest earned or paid on foreignloans). Boom A balance in the current a/c. This is services exports (credits) less services imports (debits).Includes transport services (e.g. shipping, land or aircraft transport between residents and non-residents - e.g. international airfares), travel(includes, all goods and services acquired for personal use by NZers travelling abroad or foreigners travelling to NZ i.e. accommodation,meals, transportation within the economy visited,gifts souvenirs ), communication (includes telecommunication + postal), royalties andlicence fees. Occurs when the economy has reached theend(top) of its growth phase- excessive confidence, speculation occur Capital account A balance in the balance of payment recording capital transfers eg Written off debt, migrants funds Balance on services Financial account Terms of trade A balance in the balance of payment recording transactions affecting international assets and liabilites An index measuring the buying power of exports (assuming a constant quality) Export Price Index Import Price Index X 1000 Trade Cycle The fluctuations in the rate of economic growth that take place in the economy. These fluctuations appear to occur around every 3 to 5 years NZ Business Cycle Output Recession Recovery Trough Boom Time TWI Net Exports Trade Weighted Index An index measuring the average of the rate of exchange between NZ and a basket of currencies of our major trading partners. Each currency in the TWI is weighted according to the relative importance of that country in terms of our trade with them. The balance between receipts from exports and payments for imports Otago Girls’ High School