Rest of eco for ea

Cyclical unemployment

Unemployment caused by a downturn in the economic cycle (a fall in aggregate demand), also known as demand-deficient unemployment; it is most responsive to demand management policy.

Structural unemployment

Unemployment resulting from a mismatch between workers' skills or location and available jobs, often caused by technological change or industry decline; requires supply-side solutions like retraining.

Frictional unemployment

Short-term unemployment that occurs while individuals are between jobs or searching for their first job; a normal, unavoidable feature of a dynamic labour market.

Seasonal unemployment

Unemployment caused by regular, predictable fluctuations in labour demand in specific industries across different times of the year (e.g. tourism, agriculture).

Natural rate of unemployment

The unemployment rate that persists when the economy is operating at full employment or potential output, broadly representing the sum of frictional, structural, and seasonal unemployment.

Hidden unemployment

Individuals who want and are available to work but are excluded from official unemployment figures because they have stopped actively seeking work (discouraged job seekers).

Long-term unemployment

Unemployment lasting 12 months or more, which frequently leads to skill loss and a declining probability of re-entering employment.

Underemployment

A category distinct from unemployment referring to workers who have employment but desire and are available to work additional hours.

Demand-pull inflation vs. cost-push inflation

Demand-pull inflation occurs when aggregate demand rises faster than aggregate supply (AD shifts right). Cost-push inflation occurs when rising production costs reduce aggregate supply (AS shifts left).

Headline inflation

The overall, unadjusted Consumer Price Index (CPI) inflation rate, which includes volatile price items such as fuel and fresh food.

Underlying inflation

A measure (such as trimmed mean or weighted median) that removes volatile or one-off price fluctuations from the CPI to reveal core price trends.

Imported inflation

Inflation driven by rising prices of foreign goods or inputs, typically caused by a depreciating exchange rate or higher global price levels.

Inflation expectations

The anticipated rate of price increases held by households and businesses, which can become self-fulfilling by influencing current wage claims and price setting.

Main benefits of sustainable economic growth

Higher living standards, job creation, reduced unemployment, increased government tax revenues, and higher business profits and investment.

Main costs of economic growth

Environmental degradation, resource depletion, inflationary pressure, worsening income inequality, and structural adjustment costs.

Automatic stabilisers

Built-in government budget mechanisms (e.g. progressive taxation, welfare payments) that automatically offset economic fluctuations without deliberate legislative changes.

Discretionary fiscal policy

Deliberate government changes to spending or taxation settings designed to influence aggregate demand, subject to recognition and implementation lags.

Direct taxation vs. indirect taxation

Direct tax is levied straight on personal or corporate income/wealth (e.g. personal income tax). Indirect tax is placed on goods and services and can be passed to consumers (e.g. GST).

Progressive taxation

A tax structure where the proportion of income paid in tax increases as total income rises.

Proportional taxation

A tax structure where a constant percentage rate is applied regardless of total income level.

Regressive taxation

A tax structure that takes a higher percentage of total income from lower-income earners than from higher-income earners.

Transfer payments

Government expenditures paid to individuals without receiving direct goods or services in return, designed to redistribute income (e.g. pensions, unemployment benefits).

Current expenditure vs. capital expenditure

Current expenditure covers day-to-day government operational costs (e.g. public sector wages), while capital expenditure funds long-term physical assets and infrastructure.

Merit goods

Goods or services that generate positive social externalities and would be under-consumed in a free market, justifying government subsidies or direct provision (e.g. healthcare, education).

Public utilities

Essential public services (e.g. water, electricity, public transport) that are provided or regulated by government due to natural monopoly characteristics.

Efficiency (in economic policy)

The optimal allocation of scarce resources to maximize total output and social welfare while minimizing waste.

Equity (in economic policy)

Fairness in the distribution of income, wealth, opportunities, and resources across different societal groups.

Policy trade-off

A scenario where making progress toward one macroeconomic goal requires accepting diminished progress toward another (e.g. lower unemployment vs. price stability).

Internal stability

An economic policy objective focused on achieving stable price levels (low inflation) and full employment within the domestic economy.

External stability

An economic policy objective focused on maintaining a sustainable current account balance, exchange rate stability, and manageable foreign debt.

Economic prosperity and wellbeing

A comprehensive objective measuring broader living standards, quality of life, and income equality beyond real GDP growth.

Time lag (in macroeconomic policy)

The total delay between identifying an economic issue, enacting policy changes, and observing the policy's complete real-world effect.

Global influences as a policy limitation

External international factors (e.g. global interest rates, commodity prices, foreign demand shocks) that limit the effectiveness of domestic economic policy.

Political constraints on economic policy

Electoral pressures and legislative obstacles that can inhibit governments from enacting necessary but unpopular economic policies.

Impact of a structural budget deficit

Persistent non-cyclical deficits reduce a government's borrowing capacity, limiting its ability to implement expansionary fiscal stimulus during economic downturns.

Reserve Bank of Australia (RBA) charter objectives

Maintaining currency stability, supporting full employment, and promoting the economic prosperity and welfare of the population.

Inflation targeting

A monetary policy framework aimed at maintaining CPI inflation within a target range (e.g. 2–3% on average over the cycle) using interest rate adjustments.

Transmission mechanism of monetary policy

The process through which changes in the central bank policy interest rate flow through financial channels to affect aggregate demand, output, and inflation.

Channels of monetary policy transmission

The interest rate channel, exchange rate channel, asset price channel, and expectations/confidence channel.

Impact of a cash rate cut on aggregate demand

Reduces borrowing costs to spur consumption and investment, while potentially depreciating the domestic currency to boost net exports.

Negative supply-side shock

A sudden event (e.g. oil price spike, natural disaster) that raises production costs or restricts an economy's productive capacity.

Economic sequence of a productivity decline

Productivity drops → output per unit of input falls → unit production costs rise → firms increase prices → cost-push inflation occurs.

Aggregate supply (supply-side) policies

Government policies aimed at boosting productive capacity, efficiency, and international competitiveness to shift long-run aggregate supply (LRAS) to the right.

Microeconomic reform

Targeted government policies designed to improve efficiency, competition, and resource allocation within specific markets or industries.

Supply-side effect of infrastructure investment

Lowers transport and operation costs while expanding overall industry productive capacity.

Supply-side effect of education and training policy

Improves workforce human capital and skill levels, boosting labour productivity and mitigating structural unemployment.

Role of Research and Development (R&D) in supply-side growth

Drives technological advancements, leading to higher productivity and expansion of long-run productive capacity.

Deregulation

The removal or reduction of government restrictions on economic activity to lower business costs and foster competitive efficiency.

Causes for productivity slowdown

weak investment

skill shortage

ageing capital

regulation