- Injections are money entering into the economy.
- Leakages are money leaving the economy.
- When injections are greater than leakages, the economy is expanding: economic growth.
- When injections are less than leakages, the economy is contracting.
- When injections are the same as leakages, the economy is at equilibrium (extremely unlikely to happen).
| Contraction | Equilibrium | Expansion |
|---|---|---|
| S + T + M > I + G + X | S + T + M = I + G + X | S + T + M < I + G + X |
The role of governments
- Protecting consumers through the regulation of the financial sector.
The Australian Securities and Investments Commission (ASIC) is an independent Commonwealth Government body responsible for the regulation of the financial sector. Its main roles are:
- monitoring the financial services industry
- monitoring the provision of financial services such as investment advice
- providing consumer protection in financial services including shares, managed funds, superannuation, insurance, credit and deposit-taking.
The role of financial sectors
Facilitate business investments in the functioning of the economy through intermediation. If the financial system is working well, it allocates funds to their most productive use. This benefits society by expanding the productive capacity of the economy, hence raising living standards.
The business cycle
The business cycle, AKA the economic cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.
| Expansion | Contraction |
|---|---|
| Rising levels of production (output) | Falling levels of production (output) |
| Increasing consumer spending | Decreasing consumer spending |
| Rate of inflation may rise | Rate of inflation may fall |
| Wage rates generally rise | Wage rates generally fall |
| Interest rates eventually rise | Interest rates eventually fall |
| Level of Unemployment falls | Level of Unemployment rises |
Unemployment rate
- The unemployed are people of working age who are without work, are available for work, andhave taken specific steps to find work.