Terminology Flashcards
(24 cards)
What is the inflation target set by the RBA?
2-3% band
This target aims to maintain price stability in the economy.
Define disinflation.
A reduction in the rate of inflation
It contrasts with inflation, where prices rise at a slower rate.
What is deflation?
A decrease in the general price level of goods and services
It is briefly mentioned as a contrast to inflation.
What does the Consumer Price Index (CPI) measure?
The average change over time in the prices paid by urban consumers for a market basket of consumer goods and services
CPI is a key indicator of inflation.
What are the components of Aggregate Demand (AD)?
C + I + G + (X-M)
Where C is consumption, I is investment, G is government spending, X is exports, and M is imports.
What is the Marginal Propensity to Consume (MPC)?
The proportion of additional income that is spent on consumption
It plays a crucial role in the circular flow model.
What are the types of unemployment?
Frictional, structural, cyclical, hardcore
Each type has different causes and implications for the economy.
What does the Phillips Curve illustrate?
The inverse relationship between inflation and unemployment
It shows a trade-off in the short run but suggests no long-term trade-off.
What is the Natural Rate of Unemployment (NRU)?
The highest employment rate without affecting inflation. All cyclical unemployment is eliminated
What is a contractionary monetary policy?
A policy that reduces the money supply to curb inflation
It often involves raising interest rates.
Fill in the blank: The _______ effect describes the impact of rising asset prices on consumer wealth.
Wealth
Positive for homeowners but negative for aspiring buyers.
What is the cash rate target set by the Reserve Bank of Australia (RBA)?
The interest rate on overnight loans between banks. The target is between 3-4%
It influences other interest rates in the economy.
What is the definition of economic growth?
An increase in the production of goods and services in an economy over time
It is typically measured by the growth of real GDP.
True or False: The long-run Phillips Curve (LRPC) suggests a permanent trade-off between inflation and unemployment.
False
LRPC indicates that there is no permanent trade-off.
What is the housing affordability crisis?
A situation where housing costs are too high relative to income levels
It leads to increased financial strain for many households.
What does the term ‘disposable income’ refer to?
The amount of money households have available for spending and saving after taxes have been deducted
It is crucial for understanding consumer behavior.
What are leakages in the context of the circular flow model?
It’s more than just imports!
Savings, taxes, imports, mortgage repayments
These reduce the flow of income in the economy.
What is persistent inflation?
A sustained increase in the price level over an extended period
It can erode purchasing power.
What is the impact of shifts in Aggregate Demand on the economy?
Changes in GDP, inflation, unemployment
These relationships are modeled using the AD-AS framework.
What does ‘real GDP’ measure?
The value of all final goods and services produced in a country, adjusted for inflation
It provides a more accurate reflection of an economy’s size and how it’s growing.
Fill in the blank: _______ spending refers to necessary expenditures that cannot be avoided.
Non-discretionary
Examples include food, housing, and utilities.
What is the significance of housing loan commitments?
Indicates the level of demand for housing finance
It can reflect trends in the housing market.
What does ‘economic opportunity’ refer to?
The chances available to individuals to improve their economic status
It can be influenced by factors such as education and employment prospects.
What is the difference between net savers and net borrowers?
Net savers accumulate savings, while net borrowers incur debt
This distinction affects overall economic stability.
