Economic Revision Exam

Macroeconomics

The study of the economy as a whole, focusing on aggregate production, expenditure, and income

Business Cycle

The recurring pattern of expansion, peak, contraction, and trough in economic activity

Expansion

The phase of the business cycle where GDP rises, employment grows, and economic activity increases

Peak (Boom)

The highest point of the business cycle characterised by high spending, high profits, inflation pressure, and low unemployment

Contraction

The phase where economic activity declines and GDP growth slows or becomes negative

Trough

The lowest point of the business cycle with weak production, low confidence, high unemployment, and low inflation

Gross Domestic Product (GDP)

The total value of all finished goods and services produced within a country during a year

GDP Inclusions

Includes household consumption, business investment, government spending, and rebuilding after disasters

GDP Exclusions

Excludes volunteer work, unpaid housework, leisure time, and environmental quality

Sustainable Economic Growth

The target growth rate of 2–4% GDP per year that supports living standards without excessive resource strain

GDP per Capita Formula

Total GDP divided by Total Population

Inflation

A general increase in prices across the economy over time

Consumer Price Index (CPI)

A measure of inflation based on a basket of over 100,000 goods and services weighted by consumer spending habits

Inflation Rate Formula

((CPI Year 2 − CPI Year 1) ÷ CPI Year 1) × 100

Inflation Target Rate

The RBA target range of 2–3% inflation per year

Demand-Pull Inflation

Inflation caused by excessive demand relative to available supply

Cost-Push Inflation

Inflation caused by rising production costs that businesses pass on to consumers

Unemployment

People who are willing and able to work but cannot find a job

Labour Force

The total number of employed and unemployed people aged 15 years and over

Unemployment Rate Formula

(Number of Unemployed ÷ Total Labour Force) × 100

Frictional Unemployment

Short-term unemployment occurring while people move between jobs or enter the workforce

Structural Unemployment

Long-term unemployment caused by technological change, outsourcing, or skill mismatches

Cyclical Unemployment

Unemployment resulting from reduced spending and economic downturns

Seasonal Unemployment

Unemployment caused by seasonal demand patterns in industries such as agriculture and tourism

Natural Rate of Unemployment

The level of unemployment where cyclical unemployment is absent, typically around 4–4.5%

Underemployment

When a person works fewer hours than desired or is employed below their skill level