Core Economics and Australian Economic Performance

Vocabulary flashcards covering core economics concepts, the five-sector circular flow model, the business cycle, demand and supply market dynamics, inflation, monetary policy, and macroeconomics.

Scarcity

The economic problem arising because human wants are unlimited while the resources available to satisfy those wants are limited.

Opportunity Cost

The value of the next-best alternative that is given up when an economic choice is made.

The Economic Problem

The fundamental challenge of having unlimited human wants alongside limited economic resources to satisfy those desires.

Wants

Goods and services that individuals desire to possess or enjoy but do not require for basic survival.

Needs

Essential goods and services required for basic survival, health, and functioning in society, such as food, water, healthcare, and shelter.

Factors of Production

The economic resources used to produce goods and services, classified into land, labour, capital, and enterprise.

Land

All natural resources used in production, including physical territory, soil, water, minerals, forests, fossil fuels, and renewable energy sources.

Labour

The physical and mental effort provided by humans to produce goods and services.

Capital

Produced physical assets used to make other goods and services, such as machinery, factories, tools, computers, and vehicles.

Enterprise

The ability and willingness to organize the other factors of production and bear the financial risks involved in business activity.

Five-Sector Model

An economic framework showing the flows of money, resources, goods, and services between the household, firms, financial, government, and overseas sectors.

Two-Sector Model

A simplified economic model consisting only of households and firms, illustrating real flows of resources and products alongside money flows of income and consumption.

Household Sector

The sector comprising consumers who provide factors of production to firms in exchange for income (wages, rent, interest, profit) and spend on consumption.

Firms Sector

The sector consisting of businesses that hire economic resources from households to produce and sell goods and services.

Financial Sector

Financial intermediaries, such as commercial banks and credit unions, that collect savings from households and firms and lend funds for investment.

Government Sector

The economic sector that collects taxation ($T$) from households and firms and provides public goods, services, and infrastructure through government expenditure ($G$).

Overseas Sector

The sector covering international trade, consisting of domestic purchases of foreign goods and services (imports) and foreign purchases of local products (exports).

Imports

Goods and services purchased from overseas producers, representing a leakage of spending from the domestic economy.

Exports

Local goods and services sold to overseas buyers, representing an injection of income into the domestic economy.

Leakages

Flows of money that exit the circular flow of domestic income, consisting of Savings ($S$), Taxation ($T$), and Imports ($M$).

Injections

Flows of money entering the domestic circular flow of income, consisting of Investment ($I$), Government expenditure ($G$), and Exports ($X$).

Equilibrium (Circular Flow)

The state where total injections equal total leakages ($I + G + X = S + T + M$), maintaining balance in aggregate demand and supply.

Business Cycle

Fluctuations in the overall level of economic activity over time, moving through phases of expansion, peak, contraction, and trough.

Business Cycle Indicators

Key economic metrics including consumer spending, output production, employment, and wages that vary predictably across business cycle phases.

Expansion

A phase of the business cycle characterized by increasing economic growth, rising GDP, higher consumer spending, and growing employment.

Peak

The highest point of economic activity in a business cycle before contraction begins, where production operates near maximum capacity.

Contraction

A phase of the business cycle marked by declining economic growth, reduced consumer spending, falling output, and rising unemployment.

Trough

The lowest point in the business cycle where economic activity and output hit bottom before recovery begins.

Recession

A period characterized by two consecutive quarters (six months) of negative economic growth.

Depression

A severe and prolonged contraction in economic activity featuring massive falls in output, widespread business failures, and very high unemployment.

Gross Domestic Product (GDP)

The total value of final goods and services produced within a country over a specific period, used to measure economic growth.

Monetary Policy

Central bank actions taken by the Reserve Bank of Australia (RBA) using interest rates and cash-rate targets to influence economic activity, spending, and inflation.

Cash Rate

The interest rate banks charge each other for overnight loans, set as a target by the RBA to influence overall market interest rates.

Expansionary Monetary Policy

Policy where the central bank lowers the cash rate to reduce borrowing costs, encouraging consumption, business investment, and economic growth.

Contractionary Monetary Policy

Policy where the central bank raises the cash rate to increase borrowing costs, slow aggregate demand, and curb inflationary pressures.

Inflation

A sustained increase in the general level of prices over time, resulting in a loss of purchasing power for money.

Consumer Price Index (CPI)

A measure tracking price changes in a representative basket of goods and services purchased by metropolitan households to measure inflation.

Demand-Pull Inflation

Inflation that occurs when aggregate demand grows faster than the economy's ability to produce goods and services, bidding up prices.

Cost-Push Inflation

Inflation that occurs when businesses pass on higher production costs (such as wages or raw materials) to consumers via increased prices.

Deflation

A sustained fall in the general price level across an economy over time.

Hyperinflation

An extremely rapid and uncontrolled rise in prices accompanied by a collapse in the purchasing power and trust in a currency.

Price Mechanism

The system in market economies through which supply and demand interact to determine equilibrium prices and allocate scarce resources.

Demand

The quantity of a good or service consumers are willing and able to purchase at a given price and point in time.

Law of Demand

The economic principle stating that, all else equal, as price increases, quantity demanded decreases; and as price decreases, quantity demanded increases.

Supply

The quantity of a good or service businesses are willing and able to offer for sale at a given price and point in time.

Law of Supply

The economic principle stating that, all else equal, as price increases, quantity supplied increases; and as price decreases, quantity supplied decreases.

Market Equilibrium

The market state where the quantity demanded equals quantity supplied at a specific price, creating no surplus or shortage.

Increase in Demand

A rightward shift of the demand curve caused by non-price factors, raising both equilibrium price ($P_2$) and equilibrium quantity ($Q_2$).

Decrease in Demand

A leftward shift of the demand curve caused by non-price factors, lowering both equilibrium price ($P_2$) and equilibrium quantity ($Q_2$).

Increase in Supply

A rightward shift of the supply curve caused by non-price factors, lowering equilibrium price ($P_2$) and increasing equilibrium quantity ($Q_2$).

Decrease in Supply

A leftward shift of the supply curve caused by non-price factors, raising equilibrium price ($P_2$) and reducing equilibrium quantity ($Q_2$).

Substitute Goods

Goods that can replace each other in consumption, such that an increase in the price of one increases demand for the other.

Complementary Goods

Goods that are used together, such that an increase in the price of one decreases demand for the other.

Standard of Living

The material wellbeing and overall quality of life experienced by individuals or populations within an economy.

Aggregate Demand

The total demand for goods and services in an economy, calculated as $AD = C + I + G + (X - M)$.

Real GDP

Gross Domestic Product adjusted for price changes and inflation to show actual changes in production volume.

Nominal GDP

Gross Domestic Product evaluated using current prices without adjusting for inflation.

Income

A flow of money received over a period of time in exchange for labour, services, products, or ownership of assets.

Wealth

The total value of assets owned by a person or organization minus liabilities, measured at a specific point in time.

Gini Coefficient

A statistical measure of inequality where $0$ represents perfect equality and $1$ (or $100$) represents complete inequality.

Lorenz Curve

A graph comparing actual cumulative distribution of income or wealth against a line of perfect equality.

Unemployment Rate

The percentage of the active labour force that is without paid employment but actively seeking and available for work.

Fiscal Policy

Government policy using government expenditure, taxation, and budget adjustments to influence aggregate demand and economic performance.

Environmental Sustainability

Meeting current economic and social needs without compromising or destroying the ability of future generations to meet their needs.