Understanding Inflation and Its Impact on the Australian Economy

These flashcards cover essential vocabulary related to inflation, its measurement, effects, and implications for the Australian economy.

Inflation

A general increase in prices and fall in the purchasing value of money.

Deflation

A decrease in the general price level of goods and services.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

RBA's target inflation rate

The Reserve Bank of Australia's target for inflation is 2-3% per year.

Headline CPI

The total inflation measured using the GDP deflator, inclusive of all goods and services.

Underlying (Core) CPI

A measure of inflation that excludes volatile items such as food and energy.

Demand-side inflation

Inflation caused by an increase in aggregate demand surpassing aggregate supply.

Cost inflation (supply-side)

Inflation caused by rising costs of production leading to increased prices.

Wage-price spiral

An economic cycle where higher wages lead to higher prices, which then lead to demands for higher wages.

International competitiveness

The ability of a country's firms to compete with those in other countries.

Consequences of high inflation

Erosion of purchasing power, wage-price spiral, distortion of spending and investment decisions.

Consequences of low inflation

Delayed consumption and increased unemployment can arise from low inflation.

Material living standards

The level of wealth, comfort, material goods, and necessary services available to a certain socioeconomic class.

Non-material living standards

Quality of life indicators that include access to leisure opportunities, self-esteem, and charitable outcomes.

Trimmed mean

An average calculated by removing a percentage of the highest and lowest values from a dataset.

Weighted median

The middle value of a dataset where each value contributes according to its weight.

Base year

The year against which other years are compared in indexing.

Economic growth

An increase in the output of goods and services in a country over time.

Full employment

The situation in which all available labor resources are being used in the most efficient way possible.

Macroeconomic goals

The broad goals of economic policy that include low inflation, full employment, and economic growth.