Economic Basics & Key Terms
What is meant by an economic indicator?
An economic indicator is a statistic used to measure and assess the performance of an economy.
State one reason why the government might intervene in the economy.
The government may intervene to improve living standards or economic performance.
Which economic indicator measures the total value of goods and services produced in an economy?
Gross Domestic Product (GDP) measures total economic output.
Identify one economic challenge businesses faced during COVID‑19.
Businesses experienced reduced demand due to lockdowns.
What is inflation?
Inflation is the general increase in prices over time, which reduces purchasing power.
Identify one example of an economic indicator used by governments to assess the economy.
An example of an economic indicator is the unemployment rate.
Identify the type of policy used when the government increases spending on infrastructure.
This is an example of expansionary fiscal policy.
Identify one economic problem shown when GDP growth falls.
Falling GDP growth indicates weaker economic activity.
What form of government assistance did businesses receive during COVID‑19 in the exam case study?
Businesses received wage subsidies of $1,500 per employee per month.
Identify one way inflation can affect consumers.
Inflation reduces consumers’ purchasing power by increasing the cost of living.
Define fiscal policy and state one tool the government uses to apply it.
Fiscal policy is the use of government spending and taxation to influence the economy.
Explain how increased government spending can help reduce unemployment.
Increased government spending creates jobs, which lowers unemployment.
identify two economic challenges Australia faced in 2024.
Australia faced high inflation and rising unemployment in 2024.
Explain how wage subsidies helped businesses in the short term.
Wage subsidies reduced business expenses and helped retain employees.
Explain one way inflation can influence business decision‑making.
Inflation increases business costs, which may lead to higher prices or reduced hiring.
Explain what is meant by the “flow-on effect” in the economy.
A flow-on effect refers to the indirect impacts that one economic change has on other areas of the economy.
Analyse one flow-on effect of government spending on infrastructure for Australia’s economy.
Infrastructure spending increases incomes and consumer spending, boosting economic growth.
Explain how rising inflation and unemployment at the same time creates challenges for government decision-making.
Rising inflation and unemployment force governments to balance reducing prices while supporting jobs.
Analyse the long-term benefits of government financial support for businesses and the economy.
Long-term support helped businesses survive, reducing unemployment and supporting economic recovery.
Analyse how high inflation can affect unemployment or economic growth.
High inflation can slow economic growth and increase unemployment as spending and investment fall.
Explain why governments rely on multiple economic indicators rather than just one when making decisions.
Governments use multiple indicators to gain a more accurate understanding of overall economic conditions.
Evaluate whether fiscal policy is always effective in improving economic performance.
Fiscal policy is not always effective because time lags and debt levels can limit its impact.
Recommend one government policy to respond to high inflation and slowing GDP growth and explain why.
The government could use contractionary monetary policy to reduce inflation and stabilise the economy.
Evaluate whether government financial support for businesses during COVID‑19 was justified.
The support was justified because it prevented widespread business closures and economic decline.
Evaluate one government policy that could be used to respond to high inflation and explain why it may be effective.
The government could increase interest rates to reduce spending and control inflation.