Economic Issues and Policies

Flashcards covering key vocabulary and concepts from lectures on economic issues, focusing on inflation, external stability, income inequality, and sustainability.

Inflation

A sustained increase in the general level of prices in an economy.

Consumer Price Index (CPI)

A measure that summarizes the movement in prices of a basket of goods and services weighted according to their significance for the average Australian household.

Inflation

A sustained increase in the general level of prices in an economy.

Consumer Price Index (CPI)

A measure that summarizes the movement in prices of a basket of goods and services weighted according to their significance for the average Australian household.

Demand-pull inflation

Occurs when aggregate demand or spending grows while the economy nears its supply capacity, leading to higher prices.

Cost-push inflation

Occurs when there is an increase in production costs that producers pass on as higher prices.

Imported inflation

An increase in the price of imported goods which raises the inflation rate.

Tariff

A tax on imported products that incentivizes domestic consumers to purchase domestic products.

Current account deficit (CAD)

Measures the level of trade of goods and services and income between Australia and the rest of the world over a period of time.

Net foreign debt

Loans owed by Australians to foreigners minus the total loans owned by foreigners to Australians.

Terms of Trade (TOT)

Measures the relative price of Australia's exports to imports.

Exchange rate

The value of one currency for the purpose of conversion to another.

Macroeconomic policy

Designed to minimize fluctuations in the business cycle, aiming for low inflation and unemployment.

Fiscal policy

A macroeconomic policy that influences resource allocation, redistributes income, and reduces fluctuations in the business cycle.

Progressive taxation

A tax system where the tax rate increases as the taxable amount increases.

Market failure

Occurs when the price mechanism does not take into account the wider social costs and benefits borne by society.

Private and social costs and benefits

Refers to the externalities that impact decision-making about goods and services produced.

Free riders

Individuals or groups who benefit from a good or service without contributing to the cost of supplying that good or service.

Negative externalities

Unintended negative outcomes of economic activity whose cost is not reflected in market prices.

Positive externalities

Unintended positive outcomes of an economic activity whose value is not reflected in the price mechanism.

Income inequality

The degree to which income is unevenly distributed among people in the economy.

Gini coefficient

A measure of income inequality where 0 represents perfect equality and 1 represents perfect inequality.

Automatic stabilisers

Policy instruments in the government budget that automatically counterbalance economic activity without the need for discretion.

Environmental sustainability

Conserving and enhancing community resources to maintain ecological processes and quality of life.