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Laissez-Faire Market System
A free and unplanned market system that often fails, necessitating government intervention.
Government Intervention
The involvement of the government in the economy to correct market failures and achieve economic objectives.
Circular Flow of Income Model
A model that illustrates the flow of money in an economy, represented by the equation S + T + M = I + G + X.
Equilibrium in CFI
The state where total leakages (S + T + M) equal total injections (I + G + X).
Paradox of Thrift
The phenomenon where increased savings during economic downturns lead to reduced consumption, lower incomes, and higher unemployment.
Aggregate Demand
The total demand for goods and services in an economy, represented by the equation C + I + G + X.
Economic Objectives
Goals such as sustainable GDP growth (3-4%), full employment (3.5%-5%), and price stability (CPI 2%-3%).
Nominal GDP
The total economic output measured at current prices, not adjusted for inflation.
Real GDP
The total economic output adjusted for inflation, reflecting the true value of goods and services produced.
Production Approach
A method of measuring GDP based on the total value of final goods and services produced in the economy.
Income Approach
A method of measuring GDP based on the total income earned by factors of production.
Expenditure Approach
A method of measuring GDP based on total spending in the economy, excluding imports.
Multiplier Effect
The phenomenon where an initial change in spending leads to a larger overall increase in national income.
Marginal Propensity to Consume (MPC)
The proportion of additional income that is spent on consumption.
Marginal Propensity to Save (MPS)
The proportion of additional income that is saved.
Aggregate Supply (AS)
The total quantity of goods and services produced in an economy at different price levels.
Deflationary Gap
The difference between the equilibrium level of production and the full employment level, indicating underutilization of resources.
Inflationary Gap
The situation where the equilibrium level of production exceeds the full employment level, indicating overutilization of resources.
Fiscal Policy
Government policy regarding taxation and spending to influence the economy.
Monetary Policy
The process by which the central bank (RBA) manages the money supply and interest rates to achieve economic objectives.
Economic Cycle
The fluctuations in economic activity over time, characterized by periods of expansion and contraction.
Stagflation
A situation where inflation and unemployment rise simultaneously, often during economic downturns.
Phillips Curve
A graphical representation showing the inverse relationship between inflation and unemployment.
Supply-Side Policies
Government initiatives aimed at increasing productivity and efficiency in the economy.
Structural Change
Changes in the economy that result in the decline of certain industries and the emergence of new ones.
Publicly Owned Business Enterprises (GBEs)
Government-owned entities established to provide services and compete with private firms.
Privatisation
The transfer of ownership of a public sector enterprise to the private sector, aimed at increasing efficiency.
Taxation Reform
Changes to the tax system to improve equity, efficiency, and simplicity.
Infrastructure Investment
Government spending on physical structures and facilities that support economic activity.
Research and Development (R&D)
Investment in innovation and new technologies to enhance productivity and competitiveness.
