Macroeconomics Flashcards (Video Notes)

Vocabulary flashcards covering key terms and concepts from the lecture notes on macroeconomics, policy tools, and related topics.

Economic objectives

The six macro goals guiding policy: economic growth with quality of life, full employment, price stability, external stability, environmental sustainability, and distribution of income.

Material standard of living

A person’s wealth and ability to satisfy desires for goods and services over time.

Quality of life

The combination of material and non-material aspects (health, fairness, opportunity, independence, social trust, access to facilities) that affect satisfaction.

Sustainable economic development

Development that meets present needs without compromising future generations’ ability to meet theirs.

NAIRU

Non-Accelerating Inflation Rate of Unemployment—the unemployment rate at which inflation does not accelerate; cyclical unemployment is zero.

Full employment

The lowest unemployment rate where inflation is not accelerating; often associated with NAIRU concepts.

Price stability

Low, stable inflation that supports confidence and predictable planning.

External stability

A country’s ability to meet financial obligations to international creditors, maintain a stable exchange rate, and manage current account and net foreign liability positions.

Current account deficit (CAD)

A persistent excess of imports over exports; a sustainable CAD is typically kept below about 5% of GDP.

Sustainable net foreign liabilities

A sustainable level of a country’s net liabilities to foreigners, indicating the stock of external debt relative to the economy.

Environmental sustainability

Meeting present needs without compromising future generations’ ability to meet theirs; involves protecting nature and limiting unsustainable economic activity.

Distribution of income

A relatively equal income spread achieved through progressive taxation and welfare; excessive inequality can harm social trust and well-being.

Expansionary macro policy

Policy stance that adds to aggregate demand, stimulating output and growth (e.g., higher spending or tax cuts).

Contractionary macro policy

Policy stance that reduces aggregate demand to cool inflation (e.g., higher rates or reduced spending).

Fiscal policy

The government’s use of spending and taxation (G and T) to influence aggregate demand and economic activity.

Net spending (G - T)

Government spending minus tax revenue; determines fiscal stance (expansionary if higher, contractionary if lower).

Budget surplus

When government revenue exceeds spending (T > G).

Budget deficit

When government spending exceeds revenue (G > T).

Budget balance

When government spending equals tax revenue (G = T).

Automatic stabilisers

Automatic fiscal changes that occur with the business cycle (e.g., higher unemployment benefits during recessions) without new policy action.

Cyclical budget changes

Budgetary changes tied to the business cycle, also known as automatic stabilisers in practice.

Monetary policy

Central bank actions that influence money supply and interest rates to affect spending and inflation.

Policy interest rate corridor

A vertical range that bounds the cash rate target, setting upper and lower bounds for market interest rates.

Cash rate target

The central bank’s target for the interbank interest rate, used to steer overall monetary conditions.

Open Market Operations (OMOs)

Central bank buying or selling of securities to keep the cash rate at its target.

Quantitative easing

Unconventional policy where a central bank purchases financial assets to raise prices and lower yields when standard policy is insufficient.

Inflation targeting

A framework where the central bank aims for a specific inflation rate or range to anchor expectations and stabilize the economy.

Inflation target band

A range (commonly around 2–3%) within which inflation is aimed to stay.

Government bonds

Debt securities issued by the government to finance deficits; traded in primary and secondary markets.

Repurchase agreements (repos)

Short-term loans backed by securities; used by the central bank to manage liquidity and money supply.

Liquidity trap

A situation where interest rates are near zero and monetary policy becomes ineffective; often requires unconventional measures like QE.

Emissions Reduction Fund (ERF)

Australia’s market-based program auctioning funding for carbon abatement projects, with successful bidders earning carbon credits.

Safeguard Mechanism

A regulatory cap on net emissions for Australia’s large emitters, designed to prevent offsetting reductions from ERF with increases elsewhere.

Emissions trading scheme (ETS)

A market-based system where permits to emit greenhouse gases are bought and sold to achieve emissions reductions efficiently.

Carbon tax

A tax on carbon emissions (a Pigouvian tax) used to internalize the externality and reduce emissions.

Pigouvian tax

A tax equal to the social cost of an externality, intended to correct market failure by reducing the activity causing harm.

Renewable Energy Target (RET)

Australia’s market-based target to generate a certain share of electricity from renewable sources; funded via certificates; can have emissions and grid-related criticisms.

UNFCCC

The United Nations Framework Convention on Climate Change; framework for international climate action and negotiations.

Kyoto Protocol

A 1997 treaty under the UNFCCC setting binding emission reduction targets for developed countries (replaced by Paris framework for many aspects).

Paris Agreement

An international climate agreement where countries pledge Nationally Determined Contributions (NDCs) to reduce emissions and limit warming.

Nationally Determined Contributions (NDCs)

Each country’s own plan under the Paris Agreement to reduce greenhouse gas emissions.

COP27

The 27th Conference of the Parties to the UNFCCC (held in 2022 at Sharm el-Sheikh); outcomes include loss-and-damage funds and updated emissions pledges.

Montreal Protocol

A 1987 international treaty to phase out ozone-depleting substances (CFCs); regarded as a successful environmental treaty.

HDI

Human Development Index; a composite measure of life expectancy, education, and per-capita income.

Gini coefficient

A measure of income inequality (0 = perfect equality, 1 = maximum inequality).

National Competition Policy (NCP)

A 1995 policy to promote competition by reforming government-owned monopolies, allowing third‑party access, competitive neutrality, and law reviews.

ACCC

Australian Competition and Consumer Commission; enforces competition policy and consumer regulations.

Awards

Industry-specific pay and conditions set by the Fair Work Commission and backed by law.

Enterprise bargaining

Workplace-level negotiations between employers and employees (often with unions) over pay and conditions; BOOT applies to approvals.

BOOT (Better Off Overall Test)

A test ensuring employees are better off under an enterprise agreement than under the applicable award.

Common law contracts

Employment contracts outside the IR framework; may include extra pay but cannot waive award conditions; decided in courts.

Jobactive

A federally funded network matching jobseekers to permanent work; over $1 billion in the 2019 budget.

Transition to Work

A pre-employment program helping young people develop skills and gain work experience.

Youth PaTH

Youth Employment program with Prepare, Trial, and Hire elements, including wage subsidies for firms.