Other study list Flashcards
(25 cards)
Define inflation in an economic context
A sustained increase in the general price level of goods and services in an economy over a period of time
Includes terms like CPI, headline, underlying, deflation, price stability, and stagflation
CPI
Consumer Price Index
The change in price paid for goods over time by consumers. Represented by a certain basket of goods spanning across multiple categories
Headline vs Underlying inflation
Headline inflation is a general indicator, encompassing all goods.
Underlying adjusts for outliars (abnormal prices or events) and is a more accurate depictor of inflation and purchasing power.
Deflation
General price level of goods and services decreases.
VS disinflation where the inflation rate slows.
Stagflation
Where unemployment and inflation are consecutively high
What are the types of unemployment? (9)
- Cyclical
- Structural
- Frictional
- Seasonal
- Natural (NAIRU)
- Hard-core
- Hidden
- Long-term
- Voluntary
Also includes the concept of underemployment and NAIRU
Hidden unemployment
When workers are in redundant jobs. The productivity level in these positions is practically 0.
Nominal vs real gdp
nominal is a general indicator.
real adjusts for inflation to show actual volume of goods and services produced.
Includes nominal and real GDP
What is the multiplier effect?
The concept that an initial change in spending will lead to a larger change in overall economic activity
Calculated using the marginal propensities to consume and save
What are the four phases of the economic cycle?
- Peak
- Recession/Contraction
- Trough
- Expansion/Recovery
Each phase relates to macroeconomic objectives
What are leading economic indicators?
Indicators that predict future economic activity
Includes other types such as lagging and coincident indicators
What does the RBA do?
and what are their objectives
To implement monetary policy aimed at achieving price stability, full employment, and sustainable economic growth
Involves managing interest rates and inflation targeting
Fill in the blank: The _______ measures the general price level changes in an economy.
Consumer Price Index (CPI)
True or False: Underemployment refers to individuals working in jobs that do not utilize their skills.
True
What is the difference between fiscal and monetary policy?
ALSO THINK OF TIME LAG
Fiscal policy involves government spending and taxation, while monetary policy involves central bank actions regarding interest rates and money supply
Both are used to influence economic objectives
What is the economic significance of the Production Possibility Curve (PPC)?
Illustrates the trade-offs and opportunity costs of producing different combinations of goods
Supports policy analysis in economics
What is inflation targeting?
by the RBA
A monetary policy strategy where a central bank aims to keep inflation within a specified range, typically around 2-3% in Australia
Changes in the cash rate are significant in this context
What are automatic stabilisers in fiscal policy?
- Progressive taxation
- Unemployment benefits
These help stabilize the economy without new government action
What is the role of discretionary spending in fiscal policy?
Government spending that is enacted through an appropriations bill, such as infrastructure projects and tax cuts
Influences aggregate demand
What are the key macroeconomic objectives? (5)
- Sustainable economic growth
- Full employment
- Price stability
- External stability
- Improved living standards
These objectives guide economic policy decisions
How do changes in the cash rate influence aggregate demand?
By affecting interest rates, exchange rates, and consumer confidence, which in turn influence spending and investment
Part of the transmission mechanism of monetary policy
What is the significance of calculating the rate of real economic growth?
It measures the increase in the value of goods and services produced in an economy adjusted for inflation
Essential for assessing economic performance
Explain the law of Aggregate Demand and Aggregate Supply.
Aggregate Demand represents the total demand for goods and services, while Aggregate Supply represents the total supply. They interact to determine the overall price level and output in the economy
Shifts in either can indicate changes in economic activity
What is
A lagging indicator
Indicators confirming long-term trends in the economy.
Confirms whether a shift in the economy has actually occurred.
