Macroeconomics Lecture Notes — Practice Flashcards (Vocabulary)

Vocabulary flashcards covering key macroeconomic concepts, indicators, policies, and external/environmental considerations drawn from the lecture notes.

Economic growth

The increase in the volume of goods and services an economy can produce over time, expressed as a percentage growth rate.

GDP

Gross Domestic Product: the total dollar value of all goods and services produced in an economy over a period.

Real GDP

GDP adjusted for price changes to measure the true volume of output.

Aggregate demand (AD)

The total demand for goods and services in an economy at a given price level.

Aggregate supply (AS)

The total output an economy can produce when factors of production are fully utilized.

Equilibrium (AD = AS)

The state where aggregate demand equals aggregate supply.

Y = C + I + G + X - M

The components of aggregate demand: consumption, investment, government spending, and net exports.

Consumption (C)

Household spending on goods/services; influenced by income, interest rates, and income distribution.

Investment (I)

Spending on capital equipment and structures; influenced by cost of capital and business expectations.

Government Spending (G)

Expenditure by government on goods and services; part of aggregate demand.

Taxation (T)

Government revenue collection that influences overall spending in the economy.

Exports (X)

Goods and services produced domestically and sold abroad.

Imports (M)

Goods and services produced abroad and purchased domestically.

Net exports (X − M)

Exports minus imports; a component of aggregate demand.

Aggregate demand multiplier

The factor by which national income increases relative to an initial autonomous spending change.

MPC

Marginal propensity to consume: the portion of additional income spent on consumption.

MPS

Marginal propensity to save: the portion of additional income saved.

Multiplier effect

An initial spending change leads to further rounds of spending, magnifying the impact on national income.

Expansionary fiscal policy

Increasing government spending or cutting taxes to stimulate demand.

Expansionary monetary policy

Lower interest rates or other measures to boost spending and investment.

Microeconomic policies

Long-term policies to improve efficiency and productivity in specific industries.

Unemployment

A situation where workers who are able and willing to work cannot find employment.

Labour Force

Employed plus unemployed people who are actively seeking work.

Labour Force Participation Rate

Labour force divided by the working-age population, expressed as a percentage.

Unemployment rate

The share of the labour force that is unemployed.

Seasonal unemployment

Unemployment due to regular seasonal patterns in demand.

Cyclical unemployment

Unemployment arising from economic fluctuations in the business cycle.

Frictional unemployment

Short-term unemployment as people transition between jobs.

Structural unemployment

Unemployment due to mismatch between skills and job opportunities.

Hidden unemployment

Individuals not actively seeking work and not counted in unemployment statistics.

Long-term unemployment

Unemployment lasting 52 weeks or longer.

Underemployment

Being employed but wanting more hours or better-quality jobs.

Hardcore unemployment

Unemployment due to non-economic factors such as caregiving responsibilities.

NAIRU

Non-accelerating inflation rate of unemployment—the lowest sustainable unemployment rate without causing inflation to rise.

Full employment

When labour demand equals supply; corresponds to the natural rate of unemployment, not zero unemployment.

Phillips curve

Inverse relationship between inflation and unemployment in the short run.

Stagflation

A period of high unemployment and high inflation.

Expectations-augmented Phillips curve

Phillips curve adjusted for inflation expectations; shifts with expected inflation.

Hysteresis

Unemployment remains high after a recession even as the economy recovers.

External stability

A country’s ability to meet international financial obligations; influenced by net foreign liabilities and exchange rate.

CAD

Current Account Deficit: a shortfall where imports exceed exports and capital flows offset it.

Dutch Disease

Resource booms causing currency appreciation that hurts non-resource sectors.

Net foreign liabilities

Net owed to foreigners that includes foreign debt and other liabilities minus foreign assets.

Foreign debt

The stock of loans a country owes to foreign lenders.

Foreign equity

Foreign ownership of domestic assets or domestic ownership of foreign assets.

Savings–investment gap

When domestic savings do not fully fund domestic investment, requiring foreign capital.

Exchange rate fluctuations

Changes in the value of a currency relative to others, affecting external stability.

Lorenz curve

Graph showing the cumulative distribution of income from the poorest to the richest.

Gini coefficient

A number between 0 and 1 measuring income/wealth inequality; 0 = perfect equality, 1 = maximum inequality.

Equivalised disposable income

Household income after taxes and transfers, adjusted for household size/composition.

Income vs wealth

Income is regular earnings; wealth is the total value of assets owned.

Merit goods

Goods/services (often government-provided) that improve social welfare.

Public goods

Non-excludable and non-rival goods provided by the government (e.g., parks, defence).

Non-excludable

A good that cannot easily exclude non-payers from its benefits.

Non-rival

One person’s use does not reduce availability to others.

Tragedy of the commons

Overuse of a shared resource due to individuals pursuing self-interest.

Climate change

Long-term increase in average global temperatures due to greenhouse gas emissions.

Greenhouse gases

Gases like CO2, CH4, and NO2 that trap heat in the atmosphere.

Paris Agreement

International treaty to limit global warming well below 2°C above pre-industrial levels.

Intergenerational equity

Fair treatment of current and future generations in resource use.

Environmental policy instruments

Laws and tools to protect the environment (e.g., Clean Air Act, Clean Water Act).

Clean Air Act

Legislation to limit emissions of air pollutants from various sources.

Clean Water Act

Legislation to prevent or reduce water pollution.

Pollution Control Act

Legislation to control pollution.

Fiscal policy

Use of government spending and taxation to influence the economy.

Expansionary Fiscal Policy

Raising spending or cutting taxes to stimulate economic activity.

Contractionary Fiscal Policy

Reducing spending or increasing taxes to cool an overheating economy.

Neutral Fiscal Policy

A balanced budget approach with roughly equal spending and revenue.

Monetary policy

Central bank actions to influence interest rates and the money supply.

RBA target inflation

The Reserve Bank of Australia aims for inflation around 2-3%.

Cash rate

Overnight interest rate banks pay to borrow from each other; a key monetary tool.

Exchange Settlement Account (ESA)

Accounts banks hold with the RBA to settle interbank payments.

Money market

Market for short-term funds where banks borrow and lend overnight at the cash rate.

Effect of cash rate changes on inflation

Higher cash rates raise borrowing costs and reduce spending; lower cash rates do the opposite.

Inflation

General rise in price levels, reducing purchasing power.

CPI

Consumer Price Index: ABS measure of price changes for a basket of consumer goods and services.

Headline vs underlying inflation

Headline CPI is the overall rate; underlying excludes volatile items to show core inflation.

Deflation

A sustained fall in the price level; can indicate weak demand and growth.

Cost-push inflation

Inflation caused by higher production costs leading to higher prices.

Demand-pull inflation

Inflation caused by excess aggregate demand pushing prices up.

Inflationary expectations

Expectations of rising prices that can lead to higher actual inflation.

Imported inflation

Rising prices due to higher import prices or a weaker currency.

Positive externalities

Benefits to society from a good or activity not captured by market prices.

Negative externalities

Costs to society not borne by the producer, leading to market inefficiency.

Internalising externalities

Policies (e.g., taxes or subsidies) to reflect social costs/benefits in prices.

Merit goods

Public goods that improve welfare and are often funded by the government.

Public goods vs private goods

Public goods are non-excludable and non-rival; private goods are excludable and rival.

Free rider

Someone who benefits from a public good without paying for it.

Tragedy of the commons

Overuse of a shared resource due to individuals acting in self-interest.

Climate migrants

People displaced by climate change effects.

Stern Report

UK government report (2006) emphasizing urgency of addressing climate change.

NDIS

National Disability Insurance Scheme: program to support people with disabilities.

Fair Work Act 2009

Australian law protecting workers' rights and standards.

BOOT

Better Off Overall Test: assesses whether proposed enterprise agreements leave employees better off.

Fair Work Commission

Australian body that administers workplace relations and wage standards.

Intergenerational equity

Ensuring resources and opportunities are available for future generations.