Monetary Policy (Year 10 Economics and Business)

Vocabulary flashcards covering key terms and definitions from the notes on monetary policy, the Reserve Bank of Australia, and related concepts.

Circular Flow of Income

A diagram showing the movement of money between households and firms through goods, services, and factor markets.

Trade Cycle

The recurring sequence of expansion, peak, contraction (recession), and trough in economic activity.

Fiscal policy

Government decisions on spending and taxation intended to influence economic activity.

Inflation

A sustained rise in the general price level of goods and services in an economy.

Unemployment

The condition of people who are willing and able to work but do not have paid employment.

Economic indicators

Key statistics that measure the performance of an economy; main ones include growth, inflation, and unemployment.

Main economic indicators

The three primary measures: economic growth, inflation, and unemployment.

Economic growth

An increase in a country’s real output or real GDP over time.

External stability

Stability in a country’s external position, including exchange rate stability and stock market stability.

Standard of living

The overall level of wealth, comfort, and access to goods and services in a population.

Trough (recession)

The lowest point in the business cycle, with low income/output and high unemployment.

Progressive tax system

A tax system where higher income earns higher tax payments.

Reserve Bank of Australia (RBA)

Australia’s central bank responsible for monetary policy, established as a statutory authority under the Reserve Bank Act 1959.

Central bank

The nation’s primary bank responsible for monetary policy and financial system stability.

Monetary policy

Policies used to influence the economy by controlling money supply and interest rates.

Cash rate

The overnight interest rate banks pay to borrow funds from each other; set by the RBA via market operations.

Official cash rate

Another term for the cash rate used in policy communications.

Market operations

RBA actions (buying/selling government securities) to influence liquidity and the cash rate.

Liquidity

The amount of money available in the economy for spending and investment.

Government securities

Debt instruments issued by the government (e.g., bonds) used in RBA operations.

Expansionary monetary policy

Policy stance that lowers the cash rate and increases money supply to stimulate spending and demand.

Contractionary monetary policy

Policy stance that raises the cash rate and reduces money supply to curb inflation.

Inflation targeting

The practice of keeping inflation within a specified target range (commonly 2–3%).

Price stability

Low and stable inflation, providing a predictable price environment.

2–3% target

The RBA’s inflation target range.

RBA board

The group of policymakers who decide monetary policy; meetings generally monthly.

Statement of Monetary Policy

The RBA’s published explanation of policy decisions released at board meetings.

Full employment

An objective meaning everyone who wants a job has one and is employed.

Flow-on effect

Secondary effects in the economy that occur after a policy change, such as changes in spending or investment.

Interest rates

The cost of borrowing money, influenced by the cash rate and monetary policy.

Banks

Financial institutions that lend to borrowers and pay savers; they adjust lending and deposit rates based on the cash rate.