1
Q
What is the Real Interest Rate?
A
The nominal rate adjusted for inflation, showing the actual increase in the lender’s purchasing power.
Formula: Real Interest Rate = Nominal Rate − Expected Inflation
2
Q
What is Yield?
A
The return earned on a financial asset.
3
Q
What is Interest Rate Spread?
A
Lending Rate - Borrowing Rate (the bank’s margin).
4
Q
How is Bank Profit calculated?
A
Profit = Interest Income + Other Income - Costs.
5
Q
What is the Cash Rate?
A
RBA target rate in the overnight money market and the interest paid on overnight loans in the short-term money market.
6
Q
What is the Variable Home Loan Rate?
A
Interest charged on mortgage loans, typically adjusts with cash rate.
7
Q
What is the Personal Loan Rate?
A
Rate charged on unsecured consumer borrowing.
8
Q
What is the Credit Card Rate?
A
High, revolving credit rate for short-term consumer debt.
9
Q
What is the Business Loan Rate?
A
Charged to firms, varies by risk, collateral and size.
10
Q
What is Government Bond Yield?
A
Return on fixed-income securities (e.g. 10-year bonds).
11
Q
What are Deposit Rates?
A
Interest paid by banks on term or savings deposits.
12
Q
What are Open Market Operations?
A
The RBA undertakes OMO by buying or selling Commonwealth Government Securities (CGS) to influence the cash rate, aiming to bring the actual cash rate closer to the cash rate target.
13
Q
What are Commonwealth Government Securities?
A
Debt instruments issued by the Australian Government, such as bonds and treasury notes, used to raise funds.
14
Q
What are Repurchase Agreements (Repos)?
A
Temporary sale of CGS with agreement to buy back later → adjusts liquidity briefly.
15
Q
What are Reverse Repurchase Agreements (Reverse Repos)?
A
Temporary purchase of CGS with agreement to sell back later → briefly increases liquidity.
16
Q
What is the Transmission Mechanism?
A
Relates to how a change in the cash rate will affect market interest rates and how this will affect different channels in the economy.
17
Q
A
18
Q
What are lenders?
A
Economic agents who supply funds to financial markets, seeking a return in the form of interest or investment income.
19
Q
How do individuals act as lenders?
A
Individuals typically lend via bank deposits, superannuation, and direct investments.
20
Q
How do businesses act as lenders?
A
Businesses with surplus funds typically lend through investment, venture capital, or managing superannuation of employees.
21
Q
How do governments act as lenders?
A
Governments lend through sovereign wealth funds, budget surpluses, or infrastructure partnerships.
22
Q
Who are international lenders?
A
International lenders include foreign investors, banks, and funds that supply capital to Australia.
23
Q
What are borrowers?
A
Borrowers are economic agents who seek funds from financial markets to spend beyond their current income.
24
Q
How do individuals act as borrowers?
A
Their purpose is typically for housing, spending, education, and more.
25
How do businesses act as borrowers?
Their purpose is typically for expansion, R&D investment, and managing costs.
26
Why do governments act as borrowers?
Their purpose is typically to manage budget deficits, build economic infrastructure, and manage the economic cycle.
27
What is money supply?
Refers to the total stock of money available in the economy at a point in time, including currency held by the public and deposits in financial institutions that can be used for transactions.
28
What is M1?
Currency (notes and coins) held by the private non-bank sector plus current deposits with banks.
29
What is M3?
M1 plus all other deposits (e.g., term deposits) with banks.
30
What is broad money?
M3 plus borrowings from the private sector by non-bank financial institutions, less their holdings of currency and bank deposits.
31
What is credit?
Funds borrowed from financial intermediaries.
32
What are interest rates?
The price paid for the use of money over time, expressed as a percentage of the amount borrowed or deposited.
33
What are Business Loans?
Loans taken by firms to purchase capital, expand operations or manage cash flow.
## Footnote
Duration: 15-30 years.
34
What is the Money Market?
Used for borrowing/lending liquid funds over very short periods.
## Footnote
Duration: 30-180 days.
35
What are Bond Markets?
Long-term debt market where borrowers issue bonds to raise large sums.
36
What are Financial Futures?
Contracts that allow future buying/selling of assets at a set price.
37
What are Domestic Markets?
Involve borrowing, lending, and investing within Australia, using the AUD and regulated by local institutions.
38
What are Global Markets?
Refer to financial flows across borders, where Australian firms raise capital from or invest in overseas markets.
39
What does the Reserve Bank of Australia (RBA) do?
Conducts monetary policy to target inflation, support employment, and ensure financial system stability.
40
What is the role of the Australian Prudential Regulation Authority (APRA)?
Supervises banks, insurers, and super funds to ensure they remain financially sound and can meet obligations.
41
What does the Australian Securities and Investments Commission do?
Regulates companies and financial products to protect consumers and uphold integrity in financial markets.
42
What is the function of the Australian Treasury?
Advises the federal government on economic policy, prepares the Budget, and develops financial legislation.
43
What is the Council of Financial Regulators (CFR)?
Coordinates regulatory policy across the RBA, APRA, ASIC, and Treasury to manage system-wide risks.
44
What is Monetary Policy?
The manipulation of the cash rate (interest rate) in order to affect the cost of borrowing and spending within the economy.
45
What is the Policy Interest Rate Corridor?
How the RBA influences interest rates in the economy by setting three key rates: the ceiling, the floor, and the cash rate target.
46
What is the Cash Rate Ceiling?
Interest rate the RBA charges banks to borrow overnight.
## Footnote
Plus 0.25%.
47
What is the Cash Rate Floor?
Interest paid by the RBA on deposits banks hold with it.
## Footnote
Minus 0.25%.
48
What are Financial Markets?
Markets in which people and organisations borrow and lend, and where a range of financial assets such as shares, bonds and derivatives are traded.
49
What are Primary Markets?
Markets that facilitate the creation of securities, that can be sold into the economy.
50
What are Secondary Markets?
Markets that involve transactions with financial assets that have already been issued on a primary market some time in the past.
51
What are Securities?
Any form of financial instrument, including shares and bonds, that provide the holder of that instrument with a claim over real assets.
52
What is the Debt Market?
A market where debt securities (such as bonds) are exchanged, or cash is lent and borrowed.
53
What is the Equity Market?
A market where investors buy and sell ownership (shares) in companies.
54
What is the Derivatives Market?
A market where people buy and sell financial assets that are based on the value of other financial assets.
55
What is the Foreign Exchange Market?
A market where currencies are traded and exchange rates are set.
56
What are Options?
A contract that gives the right (but not the obligation) to buy or sell an asset at a set price in the future.
57
What are Futures?
A contract to buy or sell an asset at a fixed price on a specific future date.
58
What are Swaps?
An agreement where two parties exchange financial terms, like interest rates or currencies, to manage risk.
59
What are Financial Instruments?
Tools used by financial markets to channel funds from savers to borrowers. These include credit products, loans, bonds, futures and foreign exchange, each serving a specific function in the economy.
60
What is Consumer Credit?
Short-term loans used by individuals for spending on goods and services. (≤ 3 yrs)
61
What are Housing Loans?
Long-term loans secured by real estate, typically used to buy homes.
62
What is hard-core unemployment?
Refers to individuals who have been unemployed for long periods due to personal reasons.
63
What is hysteresis?
Loss of skills due to extended periods of unemployment.
64
What is part-time employment?
Employees regularly working less than 35 hours per week.
65
What is casual employment?
Refers to employees working occasionally but do not follow any set pattern.
66
What is outsourcing?
When a business pays an external firm to carry out tasks not considered part of its core business.
67
What are contractors?
Independent workers hired for a specific task or period.
68
What are sub-contractors?
Businesses or individuals hired by a contractor to complete part of a job.
69
What are trade unions?
Trade unions represent workers in wage negotiations, workplace conditions, and industrial disputes.
70
What is an industrial dispute?
A disagreement or contention between an employer and their employees regarding matters related to work or employment.
71
What is an occupational/craft union?
Represents workers with the same occupation (e.g. CEPU).
72
What is an industrial union?
Represents all workers in an industry (e.g. TWU).
73
What is a general union?
Represents diverse occupations across industries (e.g. AWU).
74
What is an enterprise-based union?
Represents workers at a specific company/enterprise (growing trend).
75
What are employer associations?
Employer associations represent the interests of businesses in industrial relations processes.
76
What is the Gini coefficient?
A statistical measure of income or wealth equality, on a scale of 0 to 1, with 0 being perfect equality and 1 being perfect inequality.
77
What is the Lorenz curve?
A graph that plots the cumulative percentage of total income received against the cumulative percentage of the population, ranked by income.
78
What is cyclical unemployment?
Unemployment resulting from economic downturns or recessions.
79
What is structural unemployment?
Caused by a mismatch between the skills of the unemployed and the skills needed for available jobs.
80
What is frictional unemployment?
Occurs when individuals are temporarily between jobs or entering the workforce for the first time.
81
What is seasonal unemployment?
Happens due to the seasonal nature of certain industries, such as agriculture or tourism.
82
What is underemployment?
Refers to workers who are employed part-time but desire more hours or work in jobs that do not fully utilise their skills.
83
What is visible underemployment?
Working less hours than available.
84
What is invisible underemployment?
Working in a job that demands less skills than they have.
85
What is hidden unemployment?
Individuals who are unemployed but not actively seeking work and thus are not counted in official unemployment statistics.
86
What is long-term unemployment?
Refers to individuals who have been unemployed for 12 months or more, typically due to structural issues in the labor market.
87
What is the Working Age Population (WAP)?
The working age population includes anyone who is above the age of 15 and can participate in the labour force.
88
What is Labour Market Equilibrium?
Labour market equilibrium occurs where the quantity of labour supplied equals the quantity of labour demanded. At this point, there is no shortage or surplus of labour, and the wage rate is stable.
89
What is the shape of the Labour Demand Curve?
The labour demand curve is downward sloping. As wages fall, firms hire more workers due to diminishing marginal returns.
90
What is the shape of the Labour Supply Curve?
The labour supply curve is upward sloping. As wages rise, more individuals are willing to work.
91
What is a Surplus of Labour?
A surplus of labour occurs when more people want to work than firms want to hire.
92
What is a Labour Shortage?
A labour shortage occurs when firms want to hire more workers than are available.
93
What is the Labour Force (LF)?
The labour force refers to the population that is 15 years and above who are either actively seeking work or already working.
## Footnote
Working is defined as 1 hour per week of paid work. Individuals on leave are also considered.
94
What is Derived Demand for Labour?
The demand for labour is derived from the demand for the final goods and services that labour is used to produce.
95
What is Labour Productivity?
Labour productivity measures output per worker, calculated as Total Output divided by Labour Input.
96
What is the Supply of Labour?
The total number of workers willing and able to work at different wage levels, across different occupations and industries.
97
What is Human Capital?
Human capital refers to the stock of knowledge and skills labour possess that contribute to economic productivity.
98
What is Occupational Mobility?
Occupational mobility is the ability to shift industries or retrain (e.g., from hospitality to aged care).
99
What is Geographic Mobility?
Geographic mobility is the willingness to move location for a job (e.g., regional incentives for teachers).
100
What characterizes Elastic Demand?
Elastic demand has a strong response to price change, with a Price Elasticity of Demand (PED) greater than 1. Price ↑ = TR ↓, Price ↓ = TR ↑.
101
What characterizes Inelastic Demand?
Inelastic demand has a weak response to price change, with a PED less than 1. Price ↑ = TR ↑, Price ↓ = TR ↓.
102
What characterizes Unit Elastic Demand?
Unit elastic demand has a proportional response to price change, with a PED equal to 1. Price change = No TR change.
103
What characterizes Perfectly Elastic Demand?
Perfectly elastic demand means any increase stops demand, with a PED of infinity. Price ↑ = TR drops to 0.
104
What characterizes Perfectly Inelastic Demand?
Perfectly inelastic demand means quantity demanded is fixed regardless of price, with a PED of 0. TR always changes with price.
105
What is Perfectly Elastic Demand?
A small change in price causes a large change in quantity demanded.
106
What is Perfectly Inelastic Demand?
A large change in price causes a small change in quantity demanded.
107
What are positive externalities?
A benefit that arises from the production or consumption of a good or service that causes harm to others and is not reflected in the market price.
108
What is a price ceiling?
A maximum price that can be charged for a good or service, set below the market equilibrium.
109
What is a price floor?
A minimum legal price for a good or service, set above the market equilibrium.
110
What is market supply?
The sum of individual supplies for a certain good or service, constituting the supply of a whole industry.
111
What occurs during the expansion of supply?
Occurs when price increases.
112
What occurs during the contraction of supply?
Occurs when price decreases.
113
What is a shift of the supply curve?
A change in supply due to factors other than price.
114
What are market prices?
The current prices at which goods, services, or assets can be bought or sold in a marketplace.
115
What is market equilibrium?
The point at which the quantity of a good or service that producers are willing to supply equals the quantity that consumers are willing to buy.
116
What is excess demand (shortage)?
When the price is below the equilibrium, the quantity demanded exceeds the quantity supplied.
117
What is excess supply (surplus)?
Occurs when quantity supplied exceeds quantity demanded at a price above equilibrium.
118
What is market failure?
When the price mechanism fails to take into account indirect costs such as damage to the environment.
119
What are merit goods?
Goods that are under-consumed in a free market, despite offering significant social benefits.
120
What are public goods?
Non-excludable and non-rivalrous goods.
121
What are externalities?
Side effects of economic activity on third parties not involved in the transaction.
122
What are negative externalities?
A cost that arises from the production or consumption of a good or service that causes harm to others.
123
What is the market mechanism (price signals)?
Prices act as signals that tell producers what to make and how much to charge.
124
What is resource allocation?
When the price of a good increases, producers are incentivized to supply more of that good.
125
What is the goods/services market?
The market where consumers buy finished products from producers.
126
What is the factor market?
The markets where the factors of production are bought and sold.
127
What does demand refer to?
The quantity demanded of a good or service by consumers at a particular price.
128
What is the law of demand?
When price rises, quantity demanded falls; when price falls, quantity demanded rises.
129
What is individual demand?
The demand for a good or service by an individual in a market.
130
What is market demand?
The sum of individual demands for a certain good or service.
131
What occurs during the expansion of demand?
Occurs when price decreases.
132
What occurs during the contraction of demand?
Occurs when price increases.
133
What is a shift of the demand curve?
A change in demand due to factors other than price.
134
What does supply refer to?
The quantity of a good or service which producers are willing and able to produce at a given price.
135
What is the law of supply?
When price rises, quantity supplied increases; when price falls, quantity supplied decreases.
136
What is individual supply?
The supply of a good or service by an individual firm or producer.
137
What are internal diseconomies of scale?
Costs of production that start to rise due to disadvantages associated with becoming too big.
138
What are technical economies of scale?
Use of expensive, high-capacity equipment not viable for small firms.
139
What are managerial economies of scale?
Hiring specialist managers improves decision-making and efficiency.
140
What are marketing economies of scale?
Large firms spread advertising costs over more units.
141
What are purchasing economies of scale?
Large orders lead to discounts from suppliers.
142
What are financial economies of scale?
Easier access to credit and lower interest rates due to size.
143
What are risk-bearing economies of scale?
Larger firms can spread risk across product lines or markets.
144
What are external economies of scale?
Cost advantages that arise outside the firm due to industry growth.
145
What are external diseconomies of scale?
Cost disadvantages that arise outside the firm due to overexpansion.
146
What are returns to scale?
How output changes relative to input changes.
147
What are increasing returns?
Output grows more than inputs.
148
What are constant returns?
Output grows in proportion to inputs.
149
What are decreasing returns?
Output grows less than inputs.
150
What is investment?
The spending by firms on capital goods to increase future production capacity.
151
What is technological change?
The development and application of new technologies that improve production methods.
152
What is ethical decision-making?
The process where firms make choices based on fairness, transparency, and social responsibility.
153
What is advertising?
The process of distributing information about a product to consumers through mass media.
154
What is informative advertising?
Gives factual information about a product.
155
What is persuasive advertising?
Links product to emotion, image, or lifestyle.
156
What is celebrity endorsement?
Uses influential figures to promote a product.
157
What is social welfare?
Government payments made to support individuals without a direct economic contribution.
158
What is a firm?
An individual business organization that produces goods and services.
159
What is an industry?
A group of firms producing similar or related goods/services.
160
What is productivity?
How much an economy can produce with a given quantity of inputs.
161
What is labor productivity?
Output per worker or hour worked.
162
What is capital productivity?
Output per unit of capital.
163
What is multifactor productivity?
Measures productivity considering both labor and capital.
164
What is division of labor?
Breaking production into smaller tasks so each worker specializes.
165
What is the location of industry?
Firms that produce similar goods cluster together to share infrastructure.
166
What is large-scale production?
Firms grow large enough to invest in specialized capital equipment.
167
What are internal economies of scale?
Bigger firms can produce at lower average costs due to their size.
168
What is consumer sovereignty?
The ability of consumers to influence what is produced through their spending.
169
What is an open economy?
Includes international trade and financial flows.
170
What is the two-sector model?
The simplest version of the circular flow of income includes households and firms.
171
What is the three-sector model?
Includes households, firms, and the financial sector.
172
What are leakages?
Any outflow of capital that reduces the level of economic activity.
173
What are injections?
Any inflow of capital that increases the level of economic activity.
174
What is the four-sector model?
Includes households, firms, the financial sector, and government.
175
What is the five-sector model?
Includes households, firms, the financial sector, government, and overseas sector.
176
What is the equilibrium condition?
S+T+M (Leakages) = I+G+X (Injections).
177
What is the AD formula?
AD = C + I + G + (X - M).
178
What are factor markets?
Where businesses purchase inputs like land, labor, capital, and enterprise.
179
What is the goods market?
Where businesses sell finished products to consumers.
180
What is the business cycle?
Illustrates fluctuations in economic activity over time.
181
What is an upswing/expansion?
Economic activity begins to rise as businesses increase production.
182
What is a boom/peak?
Economic activity reaches its highest point.
183
What is a downswing/contraction?
Economic growth begins to slow as demand weakens.
184
What is a recession/trough?
The economy reaches its lowest point.
185
What is the circular flow of income model?
Simplifies the structure and operation of a market economy.
186
What is the household sector?
Provides resources and consumes goods/services.
187
What is the firms sector?
Produces goods and services and employs resources.
188
What is the financial sector?
Facilitates saving and investment by linking households and businesses.
189
What is the government sector?
Collects taxes and provides public services.
190
What is the overseas sector?
Handles imports and exports, impacting national income.
191
What is a closed economy?
Excludes the overseas sector, meaning no international trade.
192
GDP
the total value of goods and services produced in a year
193
welfare payments
Moonetary support for those unemployed, vunerable, disabled individuals
194
proggresive tax system
higher income individuals pay a larger share of taxes.
195
fiscal Policy
government manages spending and tax
196
Monetary Policy
rba adjusts interest rates to control inflation and unemployment
197
enterprise bargaining
employees negotiate wage in exchange for productivity gains
198
Cost-Plus pricing
Prices set based on production costs plus a markup for profit
199
Total Revenue (TR)
price x q. sold
200
Superannuation Contributions
Employers contribute 12% of wages to super
201
Types of employment
Unskilled
Skilled/Proffessional
Trade
Semi-skilled
202
Speculative Motive
Investing in shares, bonds, or real estate for future return on investment
(ROI).
203
Precautionary Motive
Saving to cover unforeseen expenses such as medical emergencies or car repairs.
204
Transactionary Motive
Holding money to finance present transactions.
205
Keynesian Motives for Saving
Transactionary Motive, Precautionary Motive, Speculative Motive
206
Income Y
gross income before tax
207
Consumer Goods
Finished products that are purchased for immediate use or consumption by
individuals, directly satisfying their needs and wants
208
Capital Goods
Assets such used in the production of
other goods and services rather than for direct consumption.
Produced means of production
209
Production Possibility Frontier
Diagram that shows the different sets of output that are attainable with
your scarce resources.
210
Opportunity cost
The value of the next-best alternative forgone when making a decision.
211
Return on Enterprise
The return on creating
a business via entrepreneurship is profit.
212
Infrastructure
capital owned by communitys
213
return on capital
the profitability and efficiency with which a company uses its capital to generate profits.
214
return on labour
wages as
a return on the factor of production.
215
labour
human work, physical or intellectual, used in the production of goods
216
economic problem
The situation whereby there are unlimited wants and limited resources.
217
Economics
studying production, distribution and exchange of goods and services in an economy
218
Automatic stabilisers
factors that change the level of government revenue and expenditure as a result of changes in economic activity.
219
what is Market failure
the circumstances where a free market fails to allocate resources in a way that is economically efficient, meaning it does not maximize society's well-being or living standards.
Eco Flash Cards
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