Inflation
What is inflation?
A general and sustained increase in the prices of goods and services over time.
Who makes the cash rate decision?
The RBA Board
What is fiscal policy?
Government use of spending and taxation to influence the economy.
What is cyclical unemployment?
Job loss caused by a downturn in the business cycle (e.g., during recession).
What does GDP stand for?
Gross Domestic Product.
List one common cause of inflation.
Demand being greater than supply, or higher production costs.
How often does the RBA meet to set the cash rate?
Monthly
Who is responsible for Australia’s fiscal policy?
The Federal Government (Treasury).
What is structural unemployment?
When workers’ skills no longer match available jobs (e.g., due to automation, technology)
What does GDP measure?
The total value of all goods and services produced in a country over a period of time.
Why is hyperinflation harmful to an economy?
It causes money to lose value quickly, discouraging saving and investment.
Give one example of supply-driven inflation.
A flood, war, or drought reduces supply and pushes prices up.
What happens when the government increases spending?
It stimulates the economy by increasing demand.
What is frictional unemployment?
Temporary unemployment while people change jobs or enter the workforce.
What does rising GDP usually indicate?
Economic growth and higher living standards.
What is meant by CPI expenditure weight?
It shows how much each category contributes to inflation based on household spending.
Why might monetary policy fail to control inflation?
The transmission time lag, Fixed-rate loans, savings buffers, or supply-driven price rises reduce its impact.
Explain how fiscal policy can reduce inflation.
The government can cut spending or increase taxes to slow down demand and reduce price pressure.
Explain how high unemployment can affect the economy.
It reduces consumer spending, slows economic growth, and lowers government tax revenue.
Identify one limitation of GDP as a measure of wellbeing.
Identify one limitation of GDP as a measure of wellbeing.
How does a lower interest rate affect the economy?
It encourages borrowing and spending, stimulating economic growth.
Why is the RBA independent from the government?
To make unbiased decisions focused on long-term economic stability rather than politics.