Macroeconomics – Chapters 6 & 7 (Lecture Review)

Fill-in-the-blank flashcards covering key concepts from Chapters 6 & 7: macroeconomic definitions, circular flow, GDP measurement, components of expenditure, equilibrium conditions, leakages/injections, consumption & investment factors, fiscal/monetary policy, economic growth, productivity, inflation and CPI.

is the study of the economy as a whole, focusing on growth, inflation, unemployment and policy.

Macroeconomics

Total production measured in dollar terms is called .

Gross Domestic Product (GDP)

Income earned from wages, profits, rent, interest and dividends is collectively known as .

Income

The model that links spending, output and income is the of income and expenditure.

circular flow

In the basic circular flow, the value of output (O) equals the value of income (Y) equals the value of (E).

expenditure

Households are the owners of productive .

resources (natural, human and capital)

Firms use resources to produce and services.

goods

Saving is the portion of household income not spent on current .

consumption

The purchase of capital goods for future production is called .

investment

Money paid to the government is a leakage known as .

taxation

When money leaves Australia to buy foreign goods, it is recorded as .

imports

Exports represent an into the circular flow.

injection

Equilibrium in the full model occurs when S + T + M = .

I + G + X

If leakages exceed injections, the economy will .

slow down (contract)

Government spending greater than taxation creates a budget .

deficit

A trade occurs when imports exceed exports.

deficit

GDP excludes goods that are used to make final goods.

intermediate

Measuring GDP by adding all incomes earned is called the approach.

income

C + I + G + (X – M) is the formula for GDP using the approach.

expenditure

Household spending on food and clothing is classified as goods.

non-durable

Major appliances lasting 3+ years are goods.

durable

Services now make up roughly % of household consumption.

60

Private investment is the most component of aggregate expenditure.

volatile

Government spending usually accounts for about % of GDP.

25

A budget (G < T) has a contractionary effect.

surplus

Short-term joblessness between positions is called unemployment.

frictional

A mismatch of skills and jobs leads to unemployment.

structural

Net exports are positive when exports are greater than imports, creating a trade .

surplus

Disposable income is the income remaining after and other compulsory deductions.

tax

Lower interest rates reduce the cost of consumption.

opportunity

An increase in household asset values can boost spending via the effect.

wealth

Firms’ outlook on future sales and profits is termed business .

expectations (confidence)

Government use of spending and taxation to influence activity is called policy.

fiscal

The Reserve Bank’s management of interest rates is known as policy.

monetary

Most government spending (about 81 %) is classified as expenditure.

current

The index comparing export and import prices is the of trade.

terms

Economic growth is an increase in the economy’s capacity.

productive

Australia’s sustainable growth target is about % per year.

3

Real GDP removes the effect of .

inflation

Price stability in Australia means keeping inflation between %.

2 and 3

Full employment aims to keep unemployment around the rate (≈4 %).

natural

GDP per is used to compare average living standards.

capita

The outward shift of the PPF represents economic growth.

potential (long-run)

Adding more labour to fixed capital leads to smaller output gains due to the Law of Returns.

Diminishing

Population growth through can quickly expand labour supply.

migration

The rate is the share of people 15+ who are working or seeking work.

participation

Productivity is the efficiency with which inputs are converted into .

output

Goods becoming cheaper because fewer labour hours are needed illustrates a benefit of higher .

productivity

Rapid growth can strain resources and create environmental .

harm (costs)

The optimal rate of growth occurs where the marginal equal marginal costs.

benefits

Inflation is a persistent and appreciable in the general price level.

rise

Australia measures inflation mainly with the Price Index (CPI).

Consumer

Weights in the CPI basket reflect each item’s share of household .

expenditure

The CPI figure that excludes volatile items provides an measure of inflation.

underlying

Higher production costs that push prices up cause -push inflation.

cost

‘Too much money chasing too few goods’ describes -pull inflation.

demand

A depreciating Australian dollar can import into the economy.

inflation

When wage growth exceeds productivity growth, rising labour costs can fuel .

inflation (cost-push)

Low spare capacity and high discretionary spending can trigger -pull inflation.

demand

An outward shift of the Aggregate Production Function can be driven by improved .

technology (or skills)

In the circular flow, are leakages while investment, government spending and exports are injections.

saving, taxation and imports

If S > I, T > G or M > X, total falls and GDP may decline.

expenditure (aggregate demand)

Government capital spending on roads and hospitals is classified as expenditure (G2).

capital

Real GDP per capita rises when growth in output exceeds growth in .

population

Nominal GDP can be misleading during high because it includes price changes.

inflation

A trade deficit is a net from the circular flow of income.

leakage

When productivity rises, wage increases can occur without causing .

inflationary pressure

Higher interest rates raise the cost of investing in capital equipment.

borrowing (or opportunity)

Fiscal stimulus (higher G or lower T) is used to combat high .

unemployment

Monetary tightening (higher cash rate) is used primarily to lower .

inflation

A headline CPI jump caused by a cyclone-induced banana shortage is smoothed out in the CPI.

underlying

Migration can slow population , easing fiscal pressures from ageing.

ageing

Economic growth above the optimal rate can accelerate resource .

depletion

Real GDP per capita is a better welfare indicator than nominal GDP because it adjusts for and population.

inflation

Gross value added equals output minus inputs.

intermediate

Expansionary fiscal policy during a downturn creates a budget .

deficit

Investment in machinery that raises output per worker improves productivity.

labour

Private investment declined from 23 % to 16 % of GDP, illustrating its .

volatility