QCAA Economics flashcards

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

Comparative advantage

A country has a comparative advantage in a good when it can produce it at a lower opportunity cost than its trading partner, making specialisation and trade mutually beneficial.

Absolute advantage

The ability to produce more of a good than another country using the same quantity of resources, or to use fewer resources for the same output.

Opportunity cost of production

The quantity of one good that must be given up to produce one additional unit of another good, calculated as forgone output divided by gained output.

Terms of trade

The ratio of a country's export price index to its import price index, expressed as a percentage; a rise means exports buy more imports.

Current account

The record of a nation's trade in goods and services, net primary income such as profits and interest, and net secondary income transfers.

Tariff

A tax levied on imported goods that raises the domestic price, reduces import quantity and protects domestic producers, while creating deadweight loss.

Import quota

A physical limit on the quantity of a good that may be imported in a period; it raises the domestic price and restricts supply similarly to a tariff.

Production subsidy

A payment to domestic producers that lowers their costs, allowing them to sell at lower prices and compete with imports without raising consumer prices.

Dumping

Exporting a good at a price below its production cost or below the price charged in the exporter's home market, often to dispose of surplus.

Currency depreciation

A fall in a floating exchange rate that makes exports cheaper in foreign currency and imports dearer in domestic currency, improving trade competitiveness.

Globalisation

The growing integration of national economies through trade, investment, migration and technology, increasing interdependence and the influence of multinational corporations.

Foreign direct investment

Investment by a firm in productive assets or a controlling stake in a business located in another country, contributing capital, technology and jobs.

Trade liberalisation

The reduction or removal of tariffs, quotas and other barriers to trade, typically through bilateral, regional or World Trade Organization agreements.

World Trade Organization

The international body that administers trade rules, settles disputes between member countries and promotes non-discriminatory, liberalised trade.

Aggregate demand

Total planned expenditure on domestic output at a given price level, equal to consumption plus investment plus government spending plus net exports.

Consumption function

The relationship showing consumption rising with disposable income according to the marginal propensity to consume, plus autonomous consumption independent of income.

Marginal propensity to consume

The fraction of each extra dollar of disposable income that households spend on consumption, between zero and one, with the remainder saved.

Multiplier

The ratio of the change in equilibrium national income to the initial change in autonomous spending, equal to one divided by one minus the MPC.

Fiscal policy

The use of government taxation and spending to influence aggregate demand, resource allocation and income distribution, conducted by the government and legislature.

Monetary policy

Central bank action to influence the cash rate and interest rates, aiming to control inflation and support sustainable growth and employment.

Cash rate

The interest rate on overnight loans between financial institutions, set by the central bank as the primary instrument of monetary policy.

Automatic stabilisers

Tax and welfare mechanisms that automatically reduce aggregate demand in booms and support it in downturns without new policy decisions.

Budget deficit

A situation where government expenditure exceeds government revenue in a period, adding to public debt and generally expanding aggregate demand.

Inflation target

A publicly announced range for the inflation rate that guides monetary policy and anchors expectations; Australia's target is two to three per cent.

Demand-pull inflation

Inflation caused by aggregate demand growing faster than the economy's productive capacity, allowing firms to raise prices.

Cost-push inflation

Inflation arising from rising production costs, such as wages or imported inputs, which shifts aggregate supply leftward and raises the price level.

Cyclical unemployment

Unemployment caused by insufficient aggregate demand during an economic downturn, which falls when growth and spending recover.

Structural unemployment

Unemployment arising from a mismatch between workers' skills or location and available jobs, often caused by technological change or industry restructuring.

Full employment

The level of employment where there is no cyclical unemployment, with only frictional and structural unemployment remaining; also called the natural rate.

Supply-side policy

Government measures such as education, infrastructure and deregulation that raise productive capacity and shift aggregate supply rightward, improving growth without inflation.

Policy trade-off

A situation where achieving one objective, such as lower inflation, worsens another, such as higher unemployment or slower growth, requiring judgement about priorities.

Recognition lag

The delay between an economic disturbance occurring and policymakers becoming aware of it, one of the lags that reduce the timeliness of stabilisation policy.

Sustainable development

Development that meets present needs without compromising the ability of future generations to meet theirs, balancing economic, social and environmental objectives.