Financial and Business

Management
(ACCOUNTING, ECONOMICS AND BUSINESS MANAGEMENT)
Indicators of Economic Performance
See Think Wonder

Activity 1: Clip
https://www.youtube.com/watch?v=7vroXyVic5A

Activity 2: Graph
How is the economy going today?
https://www.abc.net.au/news/programs/kohler-report
 A. Us at school
How do we B. A Business
measure the
performance
of… C. Our Family

D. The Economy
Economic
Performance
Definition
STATISTICS THAT INDICATE THE DIRECTION
OF AN ECONOMY.
(USUALLY EXPRESSED AS A PERCENTAGE.)
Ways to measure the economy’s performance:
 Economic Growth
 Levels of unemployment
 Interest rates
 Sustainability Index
 Inflation Rate

There are also others but these are the main ones. It is like a game of Jenga - one can influence
another, but not always.
Economic Growth
(don’t write this down)
Is measured via the Gross Domestic Product (GDP) and also consumer spending.

Ideally we want a strong growing economy, but if it grows too quickly then we have a problem
as wages may not be keeping up with the availability of the goods and services. If it is too slow,
people aren’t spending as they are conservative and businesses struggle.
Gross Domestic Product
(GDP)
DEFINITION:

Gross domestic product (GDP) is a measure of the size of an

economy. It is the monetary value of final goods and services -
that is, those that are bought by the final user - produced in a
country in a given period of time.
GDP ( Gross Domestic Product)
In 2007 it was 953 Billion
In 2010 it was 1249 Billion
In 2012 it was 1555 billion (1.555 trillion)
In 2013 it was 1506 billion
In 2014 it was 1.465 trillion
In 2016 it was 1.208 trillion
In 2017 it was 1.323 trillion
In 2018 it was 1.432 trillion
In 2019 it was 1.39 trillion
In 2020 it was 1.37 trillion
In 2021 it was 1.54 trillion
What does not count in a country’s
GDP?
Cash in hand work

Worked performed in the home

Volunteers

Natural disaster rework

Any illegal activity – drug dealing etc.

Get out your
highlighter…
GDP = C + I + G + (Ex - Im)
The parts of the formula are simple:

C = total spending by consumers

I = total investment (spending on goods and services) by businesses

G = total spending by government (federal, state, and local)

(Ex - Im) = net exports (exports - imports)

https://www.abc.net.au/news/2019-10-18/household-debt-leaves-australians-working-longer-spending-le
ss/11608016
https://statisticstimes.com/economy/projected-world-gdp-ranking.php
Level of unemployment
Definition: The unemployment rate is the percentage of available workers (known as the

workforce) who are unable to find work..

When are you unemployed? Current rate is:

Aged over 15 years 3.5% Sept 2022

5.2% Nov 2021

Not employed for more than one hour of paid work in the week

Taking active steps to find work

Available to start work.

https://www.abc.net.au/news/2022-09-18/are-you-excluded-from-the-official-unemployment-figures-/101450870
https://www.9news.com.au/national/australia-unemployment-rate-explainer-how-is-it-measured-and-why/b17d1df6-1573-447e-a6d9-de259e3fa9a4
Types of
unemployment:
Frictional eg

Cyclical eg

Structural eg

Seasonal eg
Brainstorm
impacts of high
unemployment.
Impact of high unemployment

 Level of wages drop

 Spending decreases

 Living standard drops

 Less government revenue ( taxes)

 More government spending (Benefits)

 Increase in mental health issues

Practice question
Unemployment continued…
Go to this webpage and read carefully about the current statistics. Is it favorable or unfavorable?
https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0

Articles:
Minimum wage and how does that compare to other countries.
Interest rates
Definition: the % amount paid by a lender to a borrower for the use of their assets (cash)

Current official rate: 2.85% it was at .10% then a rise of .25, .50 and .50 etc basis points
https://tradingeconomics.com/australia/interest-rate
The official rate is set by the Reserve Bank Governor Philip Lowe on the first Tuesday of each
month.
The Banks sort of follow this! They are good at up but not so much at down.
If interest rates are too high then investors don’t borrow for houses and shares as it is expensive
but it does slow the inflation rate, people are more likely to save in term deposits as a source of
income. People stop spending as they need to put spending money into mortgages.
If interest rates are too low then no ones saves or moves money elsewhere but it allows
consumers to borrow and spend increasing consumer spending because it is cheap to borrow.
 Research:
Go online and find two articles (news or analysis) about interest rates in the last 4 years, preferably
Australian, and the impact of interest rates. You should be able to find lots in the last 2 months!

 Read the article

 Make a few notes about what the article was about

 Share with the class later on.

RBA handout

https://www.rba.gov.au/chart-pack/interest-rates.html
 What are negative interest rates?
This is not on the test.

If rates are negative, what affect could this have on home loans?
The big question is what negative interest rates might mean for people with a mortgage.
This all depends on the type of home loan you have. If you have taken out a “fixed” rate – where you, as the borrower, agrees to pay a set rate
over an agreed timeframe (usually 2 to 3 years), very little will happen until the fixed term is over. For “variable” rate mortgages, which rise and
fall in line with the cash rate, this could mean that repayments change. In some cases, it could mean that borrowers get paid for having a
home loan rather than paying interest.
What about savings accounts?
If negative interest rates can cause banks to pay borrowers to have a mortgage, could they also charge you for holding your savings?
With the cash rate currently at 0.10% in Australia, the interest rate on many savings accounts is less than 1%. The reality is, yes, banks could
charge you for the convenience of having a bank account. But that doesn’t mean you should rush to withdraw your life savings and hide it
under your mattress. Depending on when you intend to use your savings, you may wish to consider a few other options in light of your
financial circumstances – including investing in higher yielding solutions such as Australian investment-grade corporate bonds, global
investment-grade corporate bonds and other securities across the credit risk spectrum.
Interest rates of zero or less might be a foreign concept in Australia – but they’re familiar elsewhere.
Negative interest rates are not a new phenomenon in the economic world. Japan, Switzerland, and the Eurozone have experience of negative
rates, in some cases going back several years.
Take Switzerland, for example. Since, 2015 the Swiss National Bank has maintained interest rates at -0.75%. The Swiss National Bank has had its
fair share of criticism, with the position of savers and pension funds worsening as a result of very low returns. But in some aspects economists
claim the policy has worked, with a sharp increase in property investment, for example, as savers look for ways to increase their returns.
https://www.schroders.com/en/au/advisers/insights/investment-insights/negative-interest-rates/
Sustainability Index
Was produced and is prepared by the United Nations using the Sustainable Development Goals
(SDGs)
Countries are ranked by their overall score. The overall score measures the total progress
towards achieving all 17 SDGs. There are 77 indicators (they are not all legally binding).
The score can be interpreted as a percentage of SDG achievement. A score of 100 indicates that
all SDGs have been achieved.
https://dashboards.sdgindex.org/profiles/australia
https://www.unaa.org.au/sdg/
Sustainability Index
Measures us as a ranking against other countries in terms of our sustainability and the
environment.
In 2016 we were 20th.
In 2021 we were 35th, 2020 we were 37th, 2019 38th also in 2022 38th
Why has it changed?
Who do you think around the world is ranked number 1 with a score of 86.51
Who is ranked 163 with a score of 39.05
There are lots of places that are not ranked and there is no score.
https://dashboards.sdgindex.org/rankings
Formative question
Inflation Rate
Definition – the upward price movement of goods and services in an economy.
More simply put: the measure of price rises.
If you earn $1000 a week and prices of consumables go up 10%, then your wage needs to be
$1100 to maintain the same buying power.
Increases in prices means decreasing in spending power and
reduced competition on our products as they are more
expensive compared to overseas products.
It also means if we have less disposable income so then we
want pay rises.
Current inflation rate is: 7.3% in 3rd quarter 2022 (1.1% in 1st
quarter 2021)
1962 had a deflationary rate of -1.30% second quarter
1951 had inflation rate of 23.9% in 4th quarter

Biggest rise was from ???? Your guesses

https://tradingeconomics.com/australia/inflation-cpi
Buying power
If you saved $100, 10 years ago under your bed,

Then it is not really worth $100 today as the amount is still $100 and has not increased with
inflation. It only has the same buying power if you received interest on it, to the same amount
of inflation rate increases.

Years ago, $1 of lollies use to buy you a lot more lollies than today
Causes of inflation
Not enough goods + services to meet excessive demand e.g. cars, bananas, fuel

Cost of production increases because of e.g. wage increasing or fuel increases

Seasonal factors including weather,

More money in the economy

Expectations of increasing inflation (speculation or consumer confidence)

CPI --- used to
measure
inflation
Consumer price index
Calculated by the Australian
Bureau of statistics
Measures the price rise on a
typical basket of goods and
services in 6 capital cities each ¼.
10000 items divided into 11
categories
Every 5 years ABS updates the
items in the basket to reflect
current spending patterns.
Using the inflation calculator.
https://www.rba.gov.au/calculator/

Handout with exercises

Australia’s performance and the business
cycle
Definition: the fluctuations or changes in
economic activity over a period of time
Lets label the following graph in booklet
Terminology – both terms accepted.
In your booklets
expansion contraction
Periods of growth – pre-Christmas, boxing day sales, back to school, decrease in interest rates,
government cash splash, infrastructure projects.
Periods of contraction – Covid-19, New Year, increase in interest rates, jobs gone overseas, high
unemployment, decreasing production
### government looks at indicators and what is happening in the business cycle and make
decisions and policy based on this.

Question in booklet

If I was to measure living standards, I would be measuring:

Ability to stay in work

Pollution levels

Ability to pay for standard basics food and electricity

Housing type

Crime rate

Access to clean water

Access to health care

Political stability
Living standards
Definition: Living standards are the level of material welfare of a community or class of person.

List 3 examples of what could be measured.

Question: Why are high living standards beneficial?

Economies can be compared to each other. Hence different economies have different living
standards. Many factors can effect performance. Some common ones include: foreign ownership
levels, employment rates and levels of debt.
Employment rates
Let’s go back and look at our notes on unemployment.
What is the benefit of full employment?
Foreign ownership
Foreign ownership is necessary for investment in a country where the country themselves can
not fund/ provide that good or service. Eg many Australian farms in NT
- Where there is foreign ownership, the profits return to the country of origin. Eg Aldi. There are
low levels of research and development, entrepreneurship, and there is cultural changes and
interference from other governments. It can stifle local economy/ competition.
+ They do provide lots of local jobs, but if they leave then this causes unemployment eg Ford/
Holden. They also provide competition for Australian businesses.
+ However, there is more variety of goods, more exports and with more employment giving us
more wages to spend.

Handout
Levels of debt
Government debt
When it spends more than its revenue we call
it a budget deficit.
It borrows money to fund from overseas (or
from the Australian public- bonds) plus they
must pay interest.
This can be seen as a positive ( more
infrastructure and living standards) and as a
negative ( taxes/ interest rates can go up).
Household debt
Spending more on credit than your disposable
income.
Reduces living standards.
On average we spend more than we earn.
Especially on credit cards.
Are we too greedy????
https://www.abc.net.au/news/2020-07-20/wh
y-debts-and-deficits-are-here-to-stay/1247130
0
Measuring livings standards
Growth in GDP – when our living standards increase then we produce more as we have more
to spend, and when we spend, we in turn increase our living standards which allows us to
produce even more.
“Where-to-be-born” index - where would you want to be born and why? Or where not and
why?

Better life index: housing, income, jobs, community support, education, environment, voter
turnout, health, life satisfaction, safety, work life balance – where do you sit?
Where to be born?
https://www.worldatlas.com/articles/the-where-to-be-born-index-the-highest-and-lowest-scoring-countries.html
 Do we have poverty in Australia?

Income and
wealth
distribution
 Measures the level of inequality of income…..
When all people share the same level of income it equals 0
When one person receives all the income it equals 1

Gini Coefficient So, a country like Sweden (all shared) or Ethiopia (all poor)
has a lower gini coefficient than South Africa (great divide)
This is why we have a minimum wage. In Sierra Leone their
minimum wage is 3c per hour.
2020 Gini Coefficient for Australia was 0.34 in 2022 it is 0.313
Comparing living standards to different
countries
Research living standards in a country of your choice (but you all have to do a different one…)
Make notes on both the positives and negatives that you can see about how they are travelling.