Inflation
Define Inflation
The increase in the general level of price of goods and services over a period of time
Define unemployment
The amount of people willing and able to work who cannot find a job
Define interest rate
The rate of borrowing money from a financial institution
How do we measure economic growth?
GDP
Define lagging indicator
A sign that shows where the economy has previously been performing
The term for the issue of not having enough resources to satisfy wants
Scarcity
What impact did Covid-19 have on economic growth?
Caused growth to decline
Name the four stages of the business cycle
Peak/Boom
Contraction/Downswing
Trough
Expansion/Upswing
What is the formula for calculating inflation?
CPI Year 2 - CPI Year 1/ CPI Year 1 x 100
What is the labour force?
The total amount of people of working age, who are able to work
Define cash rate
Define GDP
Gross Domestic Product is the total amount of value of all goods and services made in an economy over a year
Define coincident indicator
A sign of how the economy is currently performing
The term for what we give up when we make choices
Opportunity cost
What was a cause of rising prices in 2026?
Closing of the straight of Hormuz due tot he Iran War
During what stage of the business cycle would unemployment be highest?
Trough
What is the target rate for inflation?
2-3%
What is the formula for calculating unemployment
Number unemployed/ Labour force
Who sets the cash rate?
RBA (Reserve Bank of Australia)
The percentage increase an economy experiences in a period of time
Define leading indicator
A sign of how the economy will perform into the future
Calculate the unemployment rate:
Labour force - 500
Unemployed - 100
20%
With a peace deal reached, what is likely to happen to price of oil world wide?
Decrease as supply increases
During what stage of the business cycle would inflation be rising?
Expansion (We hope)
Calculate the inflation rate below:
Year 2 - 105
Year 1 - 100
5%
The current unemployment rate is
4.5%
What is the current interest rate?
4.35%
List two limitations of GDP
- Doesn't account for income distribution
- Doesn't account for inflation unless using real figures
- Doesn't deal with health or education
The housing market is an example of what indicator
Leading
Explain why someone may earn more than another?
Human capital differences such as skills and qualifications
Covid-19 saw less unemployment in Australia that some countries due to what government policy?
JobKeeper
During what stage of the business cycle will investment be high, unemployment low, interest rates high and government spending low?
Peak/Boom
The current inflation rate is
4.6%
List the four types of unemployment
Structural, cyclical, seasonal, frictional
Why might the reserve bank increase interest rates?
To try and reduce consumer spending to bring down economic growth in an attempt to reduce inflation
What is one cost and one benefit of economic growth?
Cost:
- Increasing inflation causing rising living costs
- An increase in interest rates restricting household spending
Benefit:
- Increase in employment figures
- Positive growth aids wage increases and government revenues
Inflation is an example of what type of indicator?
Lagging
Explain two ways the government is impacted by unemployment
- Greater spending on unemployment benefits and welfare
- Reduced income tax revenue
One of many reasons for some of the difference income distribution is the Global Financial Crisis that began in what year?
2008
During what stage of the business cycle would we expect to enter into in the future if inflation is low, interest rates at their lowest, housing sales are rising and consumer confidence is increasing?
Expansion
List two consequences of high inflation
- Lower levels of consumer spending/confidence
- Increases in interest rates
- Lower international competitiveness
- Decline in purchasing power
Two consequences of high unemployment are
- Lower levels of consumer spending/confidence
- Lower levels of economic growth
- Lower porductivity
List two consequences of high interest rates
- Higher repayment costs of loans leading to lower consumer spending
- Increase in revenue from some (loan) investments- Lower economic growth
What is Australia's current GDP as of March 2026?
1.76 trillion USD
GDP is an example of what type of indicator
Coincident
The term for high inflation and low or negative levels of economic growth
Stagflation
Explain how oil crises can lead to increases in inflation
An oil crisis causes a drop in the supply of oil causing an increase in the price as it is now in shortage. An increase in the price of oil increases the cost of shipping and transporting goods as well as an increase if the price of materials made from oil. This price rise for companies is passed onto the consumer, increasing the price of goods and services.
During what stage of the business cycle would we see high levels of government spending, high levels of cyclical unemployment, low interest rates, low levels of investment, low inflation, high levels of insecurity and increasing tax cuts?
Trough