Definitions Flashcards
(22 cards)
Economic growth
The increase in the volume of goods and services that an economy produces over a period of time, measured by the annual rate of change in real GDP.
Aggregate demand (AD)
The total expenditure on goods and services within the economy. It is composed of consumption, investment, government spending, and net exports.
Aggregate supply (AS)
The total value of goods and services that an economy’s producers are willing and able to supply at different price levels over a period of time.
Business cycle
The fluctuations in real GDP growth, characterised by recurring periods of expansion and contraction in economic activity.
Unemployment
The situation where individuals in the labour force who are willing and able to work cannot find paid employment.
Unemployment rate
The percentage of the labour force that are unemployed.
Cyclical unemployment
Occurs when a downturn in the business cycle reduces AD, leading to a fall in derived demand for labour.
Structural unemployment
Arises from long-term shifts in industry and technology, resulting in a mismatch between the skills of the labour force and the requirements of jobs available.
Frictional unemployment
Short-term unemployment that occurs when individuals are temporarily between jobs.
Labour underutilisation
Encompasses both unemployment and underemployment, providing a broader measure of spare capacity in the economy beyond the headline unemployment rate.
Participation rate
The proportion of the working-age population that is either employed or actively seeking employment.
Hidden unemployment
Individuals who are not actively seeking work and are therefore not counted in the labour force, despite being willing and able to work.
Non-Accelerating Inflation Rate of Unemployment (NAIRU)
The natural rate of unemployment excluding cyclical unemployment that maintains stable inflation.
Inflation
The sustained rise in overall price levels in the economy over time, measured by changes in the Consumer Price Index (CPI).
Consumer Price Index (CPI)
Summarises the price movements of a weighted basket of goods and services that reflect the spending patterns of an average Australian household.
Headline inflation rate
The percentage change in CPI from the previous year.
Underlying inflation rate
A less volatile measure by excluding large one-off price movements, most commonly using the trimmed mean and weighted median.
Demand-pull inflation
Arises when increases in AD exceed the increases in AS, causing upward pressure on the general price level due to excess demand in the economy.
Cost-push inflation
Occurs when rising production costs, such as wages and raw materials, reduce aggregate supply and increase business expenses, leading firms to raise prices, thereby driving up the general price level.
Imported inflation
A supply-side cause of inflation that occurs as a result of increase in the price of imports.
Inflationary expectations
Anticipated rises in inflation that influence individual behaviour in ways that can actually cause inflation, making them a self-fulfilling driver moderated by the RBA’s 2-3% target to anchor expectations.
Wage-price spiral
A cycle where rising wages increase production costs, leading to higher prices, which then prompt further wage demands and continued inflation.
