contemporary macroeconomics

Question 1

sustainable economic growth

Answer 1

rate of growth which does not create significant economic problems for future generations

2-4% annual growth in productive capacity

Question 2

equitable distribution of income & wealth

Answer 2

fair distribution of personal income to be able to access basic goods & services

Question 3

full employment

Answer 3

situation where everyone who wants a job has a job

Question 4

price stability

Answer 4

state of the economy with little variation in prices (low inflation)

Question 5

external stability

Answer 5

situation where the balance of payments has no unwanted movements of foreign reserves

Question 6

sustainable development

Answer 6

development which cares for the environment & future generations

Question 7

fiscal policy

Answer 7

government employs taxation & government expenditure

Question 8

monetary policy

Answer 8

RBA employs cash rates

Question 9

expansionary stance

Answer 9

stimulate the economy when it is slowing down

monetary policy : lower cash rates

fiscal policy : lower taxes & higher government expenditure

Question 10

expansionary stance

Answer 10

stimulate a stagnating economy

monetary policy : lower cash rates

fiscal policy : lower taxes & higher government expenditure

Question 11

contractionary stance

Answer 11

stagnate an overheating economy

monetary policy : higher cash rates

fiscal policy : higher taxes & lower government expenditure

Question 12

internal balance

Answer 12

state of the economy with price stability (inflation between 2-3%) & full employment (unemployment between 4-5%)

Question 13

demand side policy

Answer 13

based on consumption

increase income, confidence & expenditure

fiscal & monetary policy

Question 14

supply side policy

Answer 14

based on production

increase competition, efficiency & output

microeconomic reform

Question 15

economic indicators

Answer 15

macroeconomic data which interprets current or future investment possibilities; judges overall health of the economy

Question 16

three economic indicators

Answer 16

inflation - measures how rapidly price levels are changing

unemployment - measures the percentage of the labor force that wishes to work, but are without jobs

GDP - measures the dollar value of final products produced within an economy in a year

Question 17

unemployed definition

Answer 17

sixteen or older who is not employed but wants to & is available to work

Question 18

labor force

Answer 18

employed plus unemployed

excludes those who cannot & don’t want to work

Question 19

structural unemployment

Answer 19

from changes to the type or location of the job

e.g. business re-location, new method of production

Question 20

frictional unemployment

Answer 20

from when workers change jobs

i.e. unemployed for a short period of time

Question 21

cyclical unemployment

Answer 21

from economic downturns on the business cycle

i.e. workers are laid off

Question 22

seasonal unemployment

Answer 22

from the seasonal nature of the job

e.g. ski instructor

Question 23

underemployment

Answer 23

employees who want more hours, are not making full use of their skills, or are working in a job they don’t want to

Question 24

natural rate of employment & non-accelerating inflation rate of unemployment (NAIRU)

Answer 24

full employment - operating on the production possibility curve

Question 25

hysteresis

Answer 25

prolonged levels of high unemployment distorts the permanent natural rate of unemployment or full employment to where the economy is no longer productively efficient

Question 26

inflation

Answer 26

increase in prices of goods & services over time

RBA’s inflation rate target is 2-3%

Question 27

winners & losers from inflation

Answer 27

winners - asset holders (e.g. property); borrowers (i.e. profit);

losers - savers (decreased purchasing power); exporters (less competitive); people on lower incomes;

Question 28

demand pull inflation

Answer 28

inflation caused by too much money chasing too few products (excessive demand)

Question 29

cost push inflation

Answer 29

inflation caused by rising production costs

Question 30

policy to address demand pull inflation

Answer 30

fiscal & monetary policy to adopt a contractionary stance

Question 31

policy to address cost push inflation

Answer 31

microeconomic reform to increase productivity, efficiency & competitiveness

Question 32

phillips curve

Answer 32

short-term trade-off between inflation & unemployment

Question 33

stagflation

Answer 33

where high inflation exists simultaneously with high unemployment

may be caused by supply-side shocks (restriction in supply)

Question 34

multiplier effect

Answer 34

an initial injection into the economy can have a multiplied effect

Question 35

marginal propensity to consume

Answer 35

proportion of income spent on consumption

Question 36

marginal propensity to save

Answer 36

proportion of income that is saved