Economic Issues: Definitions

Economic Growth

refers to the increase in value of goods and services within an economy over a period of time measured in real GDP

Aggregate Demand

Total demand for goods and services in an economy at a ceartin price level

Aggregate Supply

Aggregate supply is the total quantity of goods and services an economy produces and sells at a given overall price level over a specific time period

Positive Effects of Economic Growth

higher per capita income, higher levels of saving, higher employment, increased taxation revenue, increased business investment,

Negative Effects of Economic Growth

environmental damage, structual unemployment, demand and cost pull inflation

Unemployment

When individuals are seeking employment cannot find a job

Non Acclerating Inflation Rate of Unemployment (NAIRU)

The lowest rate of unemployment that can be sustained without causing wages and inflation to rise

Effects of Unemployment

less taxation revenue, slow wage growth, less equal distrubution of income

Inflation

Refers to the general increase of the price of goods and services over time

Headline Inflation

The total inflation within an economy including volatile goods and services

Underlying Inflation

The total inflation in an economy removing seasonal and volatile factors

Demand Pull Inflation

Occurs when the total aggregate demand of an economy increases

Cost Push Inflation

A result of a decrease of aggregate supply within an economy.

Effects of Inflation

Loss of consumer purchasing power, lower level of savings, reduction in real wage and income

External Stability

When export income is sufficient to finance import expenditure, the servicing costs of Australia’s foreign liabilities is relatively stable over time.

Net Foreign Liabilites

The difference between Australia’s total foreign assets and total foreign liabilities