CORE CONCEPTS
What is the basic economic problem all societies face?
Scarcity – limited resources vs. unlimited wants.
What is globalisation?
The integration of economies through trade, investment, finance, technology, labour, and information flows.
What is Australia’s inflation target range?
2–3% (RBA target).
What is the target inflation rate in Australia?
The target range is 2–3% inflation per year.
What is the main objective of monetary policy in Australia?
Price stability (keeping inflation 2–3%).
Define opportunity cost and give one example.
The value of the next best alternative forgone. Example: Choosing study over part-time work means lost wages.
Name two indicators of globalisation.
Trade as % of GDP; foreign direct investment (FDI); tourism; migration; ICT flows.
What are the terms of trade?
Ratio of export prices to import prices.
What is the difference between structural and cyclical unemployment?
Structural = mismatch of skills and jobs.
Cyclical = caused by downturn in the business cycle.
Who sets the official cash rate?
The Reserve Bank of Australia (RBA).
What is the difference between allocative efficiency and productive efficiency?
Allocative = resources go to goods/services most wanted by society.
Productive = producing at lowest possible cost.
What is the role of the WTO?
To promote free trade, resolve disputes, and enforce trade agreements.
How does a fall in the AUD affect Australia’s trade balance?
Exports more competitive (↑), imports more expensive (↓), improving trade balance.
What is one economic and one social cost of unemployment?
Economic = lost output/tax revenue.
Social = reduced living standards/mental health issues.
How can fiscal policy reduce unemployment?
Government increases spending or cuts taxes → boosts aggregate demand and jobs.
How does a market economy differ from a planned economy in answering the three economic questions?
Market = private decisions via price mechanism.
Planned = government decides production and distribution.
How has globalisation impacted developing economies?
Increased access to capital, trade, and technology → growth, but also risks of inequality and vulnerability.
What are Australia’s top export and import categories?
Exports = commodities (iron ore, coal, LNG).
Imports = manufactured goods (machinery, vehicles, consumer products).
How does economic growth affect the environment?
Higher production and consumption → more pollution, resource depletion.
Give one short-term and one long-term effect of supply-side policies.
Short-term = higher costs of adjustment.
Long-term = higher productivity and growth.
How does a mixed economy balance the roles of government and markets?
Market sets prices/resources, government intervenes for equity, stability, and public goods.
What is the role of multinational corporations (MNCs) in globalisation?
Drive FDI, transfer technology, create jobs, but can exploit labour/resources.
What is trade liberalisation?
Removal/reduction of trade barriers (tariffs, quotas) to encourage free trade.
How does inflation affect income distribution?
Hurts low/fixed income earners, benefits borrowers if wages don’t keep up.
How do microeconomic policies improve international competitiveness?
By increasing efficiency, lowering costs, and boosting productivity (e.g. deregulation, infrastructure).
Name the three main types of economic systems and how each addresses scarcity.
Market – prices/competition; Planned – government allocates; Mixed – combination of both.
What does “convergence” and “divergence” of living standards mean in globalisation?
Convergence = developing nations catching up.
Divergence = gaps widening between rich and poor nations.
Name two trade agreements Australia is part of.
CPTPP, AUSFTA, RCEP, AANZFTA.
What is one government policy that reduces income inequality?
Progressive taxation or social welfare (e.g. JobSeeker, Family Tax Benefit).
Name one monetary, one fiscal, and one microeconomic policy used in Australia.
Monetary = cash rate changes.
Fiscal = stimulus packages, tax cuts.
Microeconomic = NBN, competition policy, labour market reforms.