Economics: Trade, Macroeconomic Policy, and Living Standards

Comprehensive vocabulary flashcards covering international trade, protectionism, exchange rates, balance of payments, productivity, inflation, monetary policy, and living standards.

Globalisation

The increasing integration of countries through trade, investment, technology, finance and the movement of labour.

International trade

The exchange of goods and services between countries.

Exports

Goods and services produced domestically and sold overseas.

Imports

Goods and services produced overseas and purchased domestically.

Free trade

International trade with few or no government-imposed barriers.

Trade liberalisation

The reduction or removal of trade barriers such as tariffs and quotas.

Free trade agreement

An agreement between economies that reduces or removes particular barriers to trade and investment.

Trade barrier

A government policy or regulation that restricts international trade.

Specialisation

Concentrating resources on producing goods or services for which an economy is relatively efficient.

Absolute advantage

The ability to produce more output using the same quantity of resources than another producer.

Comparative advantage

The ability to produce a good or service at a lower opportunity cost than another producer.

Opportunity cost

The value of the next-best alternative forgone when a choice is made.

Terms of trade

An index comparing export prices with import prices, calculated as $\text{Terms of trade} = \frac{\text{Export price index}}{\text{Import price index}} \times 100$. A rise means export prices have increased relative to import prices.

Protectionism

Government action designed to protect domestic producers from foreign competition.

Tariff

A tax placed on imported goods.

Import quota

A numerical limit on the quantity or value of a good that may be imported.

Subsidy

Financial assistance provided by a government to lower a producer's costs or encourage production.

Embargo

A complete or substantial prohibition on trade with a country or in a particular product.

Local-content rule

A requirement that a specified proportion of a product be produced domestically.

Infant industry

A new domestic industry that may need temporary protection while it becomes competitive.

Dumping

Selling exports in a foreign market at an unfairly low price, such as below their normal value.

Structural unemployment

Unemployment caused by a mismatch between workers' skills or locations and the jobs available (or between available workers and available jobs).

Trade retaliation

When another country responds to a trade barrier by imposing restrictions of its own.

Exchange rate

The price of one currency expressed in another currency.

Floating exchange rate

An exchange rate determined mainly by demand and supply in foreign-exchange markets.

Appreciation

An increase in a currency's value relative to another currency.

Depreciation

A decrease in a currency's value relative to another currency.

Exchange-rate competitiveness

The effect of a currency's value on the relative prices of domestic exports and foreign imports.

Foreign investment

Investment by residents of one economy in assets or businesses in another economy.

Speculation

Buying or selling currency based on expectations of future exchange-rate movements.

Balance of payments

A record of economic transactions between residents of an economy and non-residents during a specified period, divided into accounts including current, capital, and financial accounts.

Current account

The section of the balance of payments recording trade in goods and services, primary income and secondary income.

Balance on goods and services

Credits from exports of goods and services minus debits for imports of goods and services.

Trade surplus

When the value of exports exceeds the value of imports.

Trade deficit

When the value of imports exceeds the value of exports.

Primary income

Income such as wages, interest, dividends and profits received from or paid overseas.

Secondary income

Transfers made without receiving a good, service or asset in return.

Current-account surplus

When current-account credits exceed current-account debits.

Current-account deficit

When current-account debits exceed current-account credits.

Financial account

Records transactions involving financial assets and liabilities between residents and the rest of the world.

Capital account

Records capital transfers and transactions involving certain non-produced, non-financial assets.

Net foreign debt

The amount residents owe overseas minus overseas debt owed to residents.

Net foreign liabilities

Australia's foreign liabilities minus its foreign assets, including both debt and equity.

Productivity

Output produced per unit of input.

Labour productivity

Output produced per worker or per hour worked.

Capital productivity

Output produced per unit of capital used.

Multifactor productivity

The efficiency with which combined labour and capital inputs are used.

Competitiveness

The ability of firms or an economy to compete successfully in domestic and international markets.

Price competitiveness

Competitiveness based on selling at a lower or more attractive price.

Non-price competitiveness

Competitiveness based on quality, reliability, branding, design, service or innovation.

Human capital

The education, skills, experience and health embodied in workers.

Capital deepening

Increasing the amount or quality of capital available per worker.

Innovation

Introducing new or significantly improved products, production processes or methods.

Economies of scale

Reductions in average production cost as the scale of production increases.

Unit labour cost

Labour cost required to produce one unit of output.

Inflation

A sustained increase in the general price level over time.

Consumer Price Index

An index measuring changes in the prices of a basket of goods and services purchased by households.

Inflation rate

The percentage change in a price index over a period, calculated as $\text{Inflation rate} = \frac{\text{New CPI} - \text{Previous CPI}}{\text{Previous CPI}} \times 100$.

Demand-pull inflation

Inflation caused by aggregate demand growing faster than the economy's capacity to produce.

Cost-push inflation

Inflation caused by rising production costs that firms pass on through higher prices.

Imported inflation

Domestic inflation caused by higher prices for imported goods or production inputs.

Underlying inflation

A measure intended to show persistent inflation by reducing the influence of unusually large temporary price movements.

Deflation

A sustained decrease in the general price level.

Disinflation

A reduction in the inflation rate while the general price level is still rising.

Purchasing power

The quantity of goods and services that a given amount of money can buy.

Real income

Income adjusted for changes in the price level.

Nominal income

Income measured in current dollar terms without adjusting for inflation.

Inflation expectations

Beliefs about future inflation that can affect wage demands, pricing and spending.

Monetary policy

The use of interest rates and other monetary tools by a central bank to influence inflation, employment and economic activity.

Cash rate

The interest rate on unsecured overnight loans between financial institutions in Australia.

Interest rate

The cost of borrowing money or the return earned from lending or saving it.

Contractionary monetary policy

An increase in interest rates intended to reduce spending, demand and inflationary pressure.

Expansionary monetary policy

A decrease in interest rates intended to encourage spending, investment and economic activity.

Transmission mechanism

The channels through which a change in monetary policy affects households, firms, aggregate demand, employment and inflation.

Aggregate demand

Total planned spending on domestically produced goods and services, given by the formula $AD = C + I + G + (X - M)$, where $C$ is consumption, $I$ is investment, $G$ is government spending, $X$ is exports and $M$ is imports.

Economic growth

An increase in an economy's production of goods and services over time.

Gross domestic product

The market value of final goods and services produced within a country during a period.

Real GDP

GDP adjusted for changes in prices.

Real GDP per capita

Real GDP divided by the population.

Living standards

The level of economic and social wellbeing experienced by individuals or a population.

Material living standards

Access to goods and services, income, wealth and consumption opportunities.

Non-material living standards

Quality-of-life factors such as health, education, safety, leisure, environmental quality and personal freedom.

Full employment

A situation where available labour is being used as fully as practicable, while some frictional and structural unemployment may remain.

Unemployment

Being without paid work, available to work and actively seeking work.

Labour force

Employed people plus unemployed people who are actively seeking and available for work.

Unemployment rate

The percentage of the labour force without work, calculated as $\frac{\text{Unemployed}}{\text{Labour force}} \times 100$.

Participation rate

The proportion of the working-age population in the labour force, calculated as $\frac{\text{Labour force}}{\text{Working-age population}} \times 100$.

Frictional unemployment

Short-term unemployment while people move between jobs or enter the labour force.

Cyclical unemployment

Unemployment caused by weak aggregate demand during an economic downturn.

Seasonal unemployment

Unemployment caused by regular seasonal changes in demand for labour.

Income distribution

How total income is divided among people or households.

Equity

Fairness in the distribution of income, wealth and economic opportunities.

Sustainability

Meeting present economic needs without undermining future generations' ability to meet theirs.