HSC Economics flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Opportunity cost

The value of the next best alternative forgone when a choice is made about the use of scarce resources, including government spending funded by taxation.

Circular flow of income

A model showing income flowing between households and firms, with injections of investment, government spending, and exports, and leakages of saving, taxation, and imports.

Aggregate demand

Total planned expenditure on domestic output: consumption plus investment plus government spending plus exports minus imports, at a given price level.

Multiplier

The ratio of the change in equilibrium national income to the initial change in autonomous spending, equal to 1 divided by the marginal propensity to save, tax, and import.

Consumer price index

A quarterly measure of the weighted average price of a basket of goods and services bought by households, used to calculate the inflation rate.

Underlying inflation

An inflation measure that excludes volatile items such as fuel and fruit, typically the trimmed mean, giving a clearer signal of persistent price pressures.

Unemployment rate

The number of people actively seeking work but not employed, expressed as a percentage of the labour force, which includes both employed and unemployed people.

Participation rate

The labour force expressed as a percentage of the working-age population, showing the share of people either employed or actively looking for work.

Real GDP

The value of all final goods and services produced in an economy over a period, adjusted for inflation using a price index to measure true output growth.

Fiscal policy

The use of government taxation and spending in the Commonwealth budget, including automatic stabilisers and discretionary measures, to influence aggregate demand and income distribution.

Monetary policy

Reserve Bank action setting the cash rate to influence interest rates, borrowing, spending, and inflation, targeting two to three per cent inflation over the cycle.

Automatic stabilisers

Built-in budget mechanisms, such as progressive income tax and welfare payments, that dampen fluctuations in aggregate demand without new government decisions.

Terms of trade

The ratio of the export price index to the import price index, multiplied by one hundred, measuring the purchasing power of exports over imports.

Exchange rate

The price of one currency expressed in terms of another, determined by demand for and supply of the currency in the foreign exchange market.

Appreciation

A rise in the value of a currency against another currency, making imports cheaper and exports dearer, which can reduce export competitiveness.

Current account deficit

A negative balance on the current account, meaning debits from imports, income, and transfers exceed credits from exports, income, and transfers in a period.

Net foreign debt

Gross foreign debt owed by residents minus foreign debt owed to residents, representing the net external borrowing liability of a nation.

Net foreign liabilities

The sum of net foreign debt and net foreign equity, measuring a nation's total net obligations to overseas residents.

Balance of payments

A record of all transactions between residents and non-residents, comprising the current account, the capital and financial account, and net errors and omissions.

Tariff

A tax imposed on imported goods, raising their domestic price, protecting local producers, and reducing consumer surplus in the importing country.

Import quota

A quantitative limit on the volume of a good that may be imported in a period, restricting supply and raising the domestic price.

Comparative advantage

The ability of a nation to produce a good at a lower opportunity cost than another nation, forming the basis for mutually beneficial specialisation and trade.

Globalisation

The increasing integration of national economies through trade, investment, migration, and technology, raising interdependence and transmission of global shocks.

Demand-pull inflation

Inflation caused by aggregate demand growing faster than the economy's productive capacity, creating excess demand that pushes prices upward.

Cost-push inflation

Inflation caused by rising costs of production, such as wages, energy, or imported inputs, shifting aggregate supply left and raising the price level.

Structural unemployment

Unemployment caused by a mismatch between the skills or location of workers and the requirements of available jobs, often following industry change or technology adoption.

Cyclical unemployment

Unemployment arising from deficient aggregate demand during an economic downturn, when firms reduce hiring and output falls below potential.

NAIRU

The non-accelerating inflation rate of unemployment, the lowest unemployment rate sustainable without causing wages and inflation to accelerate.

Gini coefficient

A measure of income or wealth inequality derived from the Lorenz curve, ranging from zero for perfect equality to one for perfect inequality.

Negative externality

A cost of production or consumption borne by third parties not involved in the transaction, such as pollution, causing market output to exceed the socially optimal level.

Microeconomic reform

Policies that improve the efficiency of product and factor markets, such as competition policy and labour market flexibility, raising productive capacity and shifting aggregate supply right.

Budget outcome

The difference between government revenue and expenditure in a year: a surplus when revenue exceeds spending, a deficit when spending exceeds revenue.