contemporary macroeconomics Flashcards
sustainable economic growth
rate of growth which does not create significant economic problems for future generations
2-4% annual growth in productive capacity
equitable distribution of income & wealth
fair distribution of personal income to be able to access basic goods & services
full employment
situation where everyone who wants a job has a job
price stability
state of the economy with little variation in prices (low inflation)
external stability
situation where the balance of payments has no unwanted movements of foreign reserves
sustainable development
development which cares for the environment & future generations
fiscal policy
government employs taxation & government expenditure
monetary policy
RBA employs cash rates
expansionary stance
stimulate the economy when it is slowing down
monetary policy : lower cash rates
fiscal policy : lower taxes & higher government expenditure
expansionary stance
stimulate a stagnating economy
monetary policy : lower cash rates
fiscal policy : lower taxes & higher government expenditure
contractionary stance
stagnate an overheating economy
monetary policy : higher cash rates
fiscal policy : higher taxes & lower government expenditure
internal balance
state of the economy with price stability (inflation between 2-3%) & full employment (unemployment between 4-5%)
demand side policy
based on consumption
increase income, confidence & expenditure
fiscal & monetary policy
supply side policy
based on production
increase competition, efficiency & output
microeconomic reform
economic indicators
macroeconomic data which interprets current or future investment possibilities; judges overall health of the economy
three economic indicators
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
unemployed definition
sixteen or older who is not employed but wants to & is available to work
labor force
employed plus unemployed
excludes those who cannot & don’t want to work
structural unemployment
from changes to the type or location of the job
e.g. business re-location, new method of production
frictional unemployment
from when workers change jobs
i.e. unemployed for a short period of time
cyclical unemployment
from economic downturns on the business cycle
i.e. workers are laid off
seasonal unemployment
from the seasonal nature of the job
e.g. ski instructor
underemployment
employees who want more hours, are not making full use of their skills, or are working in a job they don’t want to
natural rate of employment & non-accelerating inflation rate of unemployment (NAIRU)
full employment - operating on the production possibility curve
hysteresis
prolonged levels of high unemployment distorts the permanent natural rate of unemployment or full employment to where the economy is no longer productively efficient
inflation
increase in prices of goods & services over time
RBA’s inflation rate target is 2-3%
winners & losers from inflation
winners - asset holders (e.g. property); borrowers (i.e. profit);
losers - savers (decreased purchasing power); exporters (less competitive); people on lower incomes;
demand pull inflation
inflation caused by too much money chasing too few products (excessive demand)
cost push inflation
inflation caused by rising production costs
policy to address demand pull inflation
fiscal & monetary policy to adopt a contractionary stance
policy to address cost push inflation
microeconomic reform to increase productivity, efficiency & competitiveness
phillips curve
short-term trade-off between inflation & unemployment
stagflation
where high inflation exists simultaneously with high unemployment
may be caused by supply-side shocks (restriction in supply)
multiplier effect
an initial injection into the economy can have a multiplied effect
marginal propensity to consume
proportion of income spent on consumption
marginal propensity to save
proportion of income that is saved
