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Rapid growth of economy also increased levels of consumption, as when economic growth outstrips population growth, it will lead to higher real income per head (Sloman & Norris 2008). For example, in 1960-61, the household final consumption expenditure per capita was $10,400, but in 2005-06, it rose to $26,100, which increases 152 per cent. Rises in real income changes consumption patterns in the society can leads to higher levels of consumer spending on discretionary goods and services. In addition, increases levels of consumption increases government tax revenue by consumers from various goods and services purchased, and increased in people’s income will contribute to tax revenue, as they need to pay more taxes. This enables government to allocate more funds to improve and rebuild tourism infrastructures, such as transportation, natural parks and other public services. Thus, this will also encourage people to travel as destinations are highly developed and supported by governments.

Week 8

1. Can you explain why cyclical unemployed people become long term unemployed when the economy recovers?

Cyclical unemployment is the ‘increase in unemployment above the natural rate during and in the aftermath of recessions’, which is related to the business cycle (Taylar & Moosa 2000, p. 167).  Cyclical unemployment exists due to inadequate effective aggregate demand. When business cycle is at slowdown phase, there is little or no growth or even a decline in output (Sloman & Norris 2008), which will increase slack in the economy, thereby the number of jobs will decrease as a decrease in aggregate demand. This will significant decrease for low skilled workers, as there are large amount of low skill workers, as when demand for goods and services slow down, businesses don’t need many low skilled workers to produce large amount of products, therefore, low skilled jobs are the first to be cut back. However, when business cycle is at the expansion phases, there is rapid economic growth and the total economic output is being maximised. This will increase aggregate demand and create product shortage, because at the expansion phase, economy growth will be strong and will increase level of consumptions. Also, at the expansion phase, new technologies will arise and businesses tend to use new technologies such as new improved machineries to improve production. However, low skill workers who unemployed were previously, will still be unemployed, as they don't have enough skills to use new technologies. Therefore, cyclical unemployed people will become long term unemployed when the economy recovers.

2. Explain carefully all the ways inflation can affect the Australian tourism and hospitality industries?

The rate of inflation is the annual percentage increase in the price level’ (Sloman & Norris 2008, p. 219), and it is the rate at which prices are increasing and is measured by the changes in the consumer price index (CPI) (Sloman & Norris 2008) .Inflation refers as a situation where the demand for goods and services exceeds their supply in the economy. A low and stable rate of inflection is desirable both for the health of the economy and for individual welfare, but high inflation can impose costs on individuals and businesses as it reduces the purchasing power of income and wealth (Australian Bureau of Statistics 2008). 

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