Economics : Glossary
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160 terms
Terms | Definitions |
|---|---|
 Absolute Poverty | The condition of people with the lowest living standards in the global economy (less than $1US per day). |
| Aggregate Demand | The total demand for goods and services within the economy. Includes components such as consumption, investment, government spending & net exports. |
| Aggregate Supply | The total productive capacity of an economy. |
| Allocative Efficiency | The economy's ability to shift resources to where they are most valued and can be used most efficiently. |
| Appreciation | An increase in the value of an economy's currency in terms of another currency. |
| Arbitration | A dispute resolution process in which an industrial tribunal hands down a legally binding ruling to firms and employees. |
| ASEAN Free Trade Area (AFTA) | A regional free trade area covering six south-east Asian economies, including Singapore, Thailand, Malaysia, Philippines, Indonesia and Brunei, which came into effect in 1992. |
| Asia Pacific Economic Cooperation (APEC) forum | A group of 21 Asia-Pacific nations that have an informal agreement to achieve free trade among their members by 2010 for developed economies and by 2020 for developing economies. |
| Association of South East Asian Nations (ASEAN) | This was established in 1967 to reduce regional tensions and to develop cooperative approaches in dealing with outside countries. Its members are: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand & Vietnam. |
| Australia United States Free Trade Agreement (AUSFTA) | This is a bilateral free trade agreement between Australia and the United States, signed in 2004. |
| Australian Competition and Consumer Commission (ACCC) | This is Australia's competition watchdog which ensures that businesses do not engage in anti-competitive behaviour. |
| Australian Council of Trade Unions (ACTU) | This is the peak trade union body in Australia at the federal level, covering most trade unions in Australia. |
| Australian Fair Pay and Conditions Standard (AFPCS) | This refers to the five conditions that set the minimum wage and conditions for Australian employees. |
| Australian Industrial Relations Commission (AIRC) | This is the peak industrial tribunal at the federal level. |
| Australian Prudential Regulation Authority (APRA) | This is the government body established to regulate all deposit-taking institutions, life and general insurance organisations and superannuation funds. |
| Australian Securities and Investments Commission (ASIC) | This is the government body with responsibility for corporate regulation, consumer protection and the oversight of financial service products. |
| Australia Trade Commission (Austrade) | This is a government organisation that assists Australian exporters in developing overseas markets. |
| Australian Workplace Agreements (AWAs) | These are a form of individual employment contract between an employer and an individual employee. |
| Automatic Stabilisers | These are instruments inherent in the government's budget that counterbalance economic activity. In a boom period, they decrease economic activity and, in a recession, they increase economic activity. The most common examples are transfer payments and a progressive tax system. |
| Average Propensity to Consume (APC) | This is the proportion of total income that is spent on consumption. |
| Average Propensity to Save (APS) | This is the proportion of total income that is not spent, but is saved for the future. |
| Average Rate of Tax | This is the proportion of total income earned that is paid in the form of tax. |
| Awards | These establish the minimum wage and working conditions for employees who are not covered by workplace agreements. |
| Balance of Payments | The record of the transactions between Australia and the rest of the world during a given time period, consisting of the current account and the capital and financial account. |
| Balanced Budget | The budget outcome where the level of taxation revenue is equal to government spending. |
| Bandwagon Effect | Refers to a situation where individuals desire a good or service because of its popularity. |
| Bilateral Free Trade Agreement | An agreement between two economies to lower tariff levels and other trade barriers in order to encourage increased trade flows. |
| Broad Money | A measure of the money supply that consists of currency in circulation; all bank deposits and deposits in non-financial intermediaries minus their holdings of bank deposits. |
| Budget | The tool of the government for the exercise of fiscal policy. It shows the government's planned expenditure and revenue for the next financial year. |
| Budget Deficit | A budget outcome where government spending is greater than revenue. |
| Budget Surplus | A budget outcome where government spending is less than revenue. |
| Business | An organisation involved in using entrepeneurial skills to combine factors of production to produce a good or service for sale. |
| Business Cycle | Refers to fluctuations in the level of economic growth due to either domestic or international factors. |
| Capital | The manufactured products used to produce goods and services, commonly described as the 'produced means of production'. |
| Capital and Financial Account | Records the borrowing, lending, sales and purchases of assests between Australia and the rest of the world. Financial inflow has the immediate effect of increasing the supply of foreign exchange to Australia while financial outflow reduces it. |
| Capital Gains | The profits made by investors who sell their shares or assests at a price above the level that they originally paid for them. |
| Capital Goods | Items that have not been produced for immediate consumption but will be used for the production of other goods. |
| Cartel | Describes a situation in which individual firms have implicitly or explicitly agreed to restrict competition, such as through agreements to fix prices, segregate the market, or limit the quantity of goods produced. |
| Cash Rate | The interest rate paid on overnight loans in the short term money market. |
| Casualisation of Work | Refers to the growth of casual employment (and the relative decline of full-time permanent jobs) as a proportion of the total workforce. |
| Central American Free Trade Agreement (CAFTA) | A regional free trade agreement between seven countries in Central and North America, signed in 2004. Its memebers are; Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the United States. |
| Centralised Incomes Policy | A system in which a government or industrial tribunal determines wages and working conditions for all employees, regardless of which firm they work for. |
| Centrally Planned Economy | An economic system whereby government planners make economic decisions and there is little scope for indiviual choice to influence the economy. |
| Collective Agreements | Collective enterprise bargaining agreements negotiated between employers and employees (who are usually represented by a trade union). They were previously known as certified agreements. |
| Ceteris Paribus | A simplifying procedure used in economics to isolate the relationship between two economic variables. It is a Latin phrase that means 'other things being equal' or assuming that nothing else changes. |
| Circular Flow of Income | A model that describes how economic activity occurs between the different groups in an economy. Saving, taxation and spending on imports represent 'leakages' from the circular flow. Investment, government spending and export revenue represent 'injections' into the circular flow. |
| Clean Float | An exchange system where the Reserve Bank does not intervene in foreign exchange markets to influence the value of the Australian dollar. |
| Closer Economic Relations Trade Agreement (CERTA) | A bilateral free trade agreement between Australia and New Zealand, which came into effect in 1983. |
| Collective Barganing | Refers to negotiation between employers and employees (or their representatives) about pay and work conditions at the level of the individual firm, also known as Enterprise Bargaining. |
| Collective Agreement | A workplace agreement that is negotiated between an employer and a group of employees, usually through a union. |
| Collective Wants | Wants of the whole community, they depend on the preferences of the community as a whole and not individuals, in Australia they are often provided by the government. |
| Collusion | When firms agree on a pricing or market sharing arragement that reduces effective competition between them, and tends to inhibit the entry of competitors into the market. |
| Common Agricultural Policy | A scheme used by economies in the European Union to promote European farm production through export subsidies and restrictions on imports from economies outside the EU. |
| Comparative Advantage | The economic principle that nations should specialise in the areas of production in which they have the lowest oppertunity cost and trade with other nations, so as to maximise both nation's standards of living. |
| Competition | The pressure on business firms in a market economy to lower prices or improve the quality of output to increase their sales of goods and services to consumers. |
| Competitiveness | A measure of the ability of producers to compete with other producers in both local and world markets. |
| Complement | A good that is used in conjunction with another good (e.g.: DVD's and DVD players) |
| Conciliation | A dispute resolution process in which firms and employees meet to discuss their differences in the presence of a third party who attempts to bring the parties to an agreement. |
| Constitution | The document which provides the overall framework for a country's system of democratic government and the relationship between the federal and state levels of government. |
| Consumer Goods and Services | Items produced for the immediate satisfaction of individual and community needs and wants. |
| Consumer Price Index (CPI) | This summarises the movement in the prices of a basket of goods and service according to their significance for the average Australian household. It is used to measure inflation in Australia. |
| Consumer Sovereignty | This refers to the manner in which consumers, collectively through market demand, determine what is produced and the quantity of production. |
| Consumption Function | This is the graphical representation of the relationship between income and consumption for an individual or an economy. |
| Contracting Out | This occurs when an organisation pays another business to perform a function that it does not regard as a core part of its business focus. It is also know as sub-contracting or outsourcing. |
| Contractionary Policies | These are government policies that attempt to reduce economic activity. It may include decreasing government spending, increasing taxation or increasing interest rates. |
| Corporatisation | This occurs when the government changes the rules around how government-owned businesses are operated so that they behave more like private-sector businesses, independent from the government. |
| Cost-Push Inflation | This occurs when there is an increase in production costs that producers pass on in the form of higher prices thus raising the rate of inflation. |
| Counter-Cyclical Policies | These are economic policies designed to smooth fluctuations in the business cycle. Macroeconomic policies such as fiscal and monetary policy are usually used as this form of policy. |
| Credit | These are loans to individuals, businesses and governments for spending, consumption and investment. |
| Crowding Out Effect | This occurs when government spending is financed through borrowing from the private sector, which puts upward pressure on interest rates and stop private investors who cannot afford to borrow at the higher rates of interest. |
| Current Account | This is the part of the balance of payments that shows the receipts and payments for trade in goods and services, transfer payments and income flows between Australia and the rest of the world in a given time period. These are non-reversible transactions. |
| Current Account Deficit (CAD) | This is recorded when the debits in the current account are greater than the credits. |
| Cyclical Unemployment | This refers to those persons that have become unemployed due to a downturn in the business cycle. |
| Debt Serving Ratio | This is the proportion of export revenue that is used to make repayments on foreign debt, and is a common measure of the sustainability of Australia's foreign debt level. |
| Decentralised Incomes Policy | This is a system in which wages and working conditions are determined through negotiations between individual firms and their employees. |
| Demand | This is the quantity of a particular good or service that consumers are willing and able to purchase at various price levels, at a given point in time. |
| Demand-Pull Inflation | This occurs when aggregate demand or spending is growing while the economy is nearing its supply capacity, so that higher demand leads to higher prices rather than more output. |
| Depreciation (of Capital) | This refers to the 'wear and tear' that all capital goods experience, which causes their value to fall over time. |
| Depreciation | This is a decrease in the value of an economy's currency in terms of another currency. |
| Deregulation | This is the removal of government controls over an industry that is intended to make business more responsive to market forces. |
| Devaluation | This occurs when the government (or central bank) lowers the value of a currency that operates with a fixed exchange rate. |
| Developing Economies | These are economies which suffer from low levels of economic development, including low living standards (measured using GDP per capita), poor living standards and low education levels. |
| Diminishing Marginal Returns | This is when a firm experiences a decline in additional output as it increases a factor of production while holding the amount of other factors of production constant. |
| Direct Tax | This is a tax where the person upon whom a tax is levied must pay the tax because it cannot be passed on to someone else. (E.g.: Income tax) |
| Dirty Float | This is an exchange rate system where the value of the currency is mainly determined by demand and supply in foreign exchange markets, but the Reserve Bank occasionally intervenes to stabilise the value of the Australian dollar during extreme volatility. |
| Dirtying the Float | This is where the Reserve Bank buys and sells Australian dollars in foreign exchange markets to influence the value of the exchange rate. |
| Diversification | This occurs when a form enters a new industry that is not directly related to its existing business operations. |
| Dividends | These are the profit returns received by the shareholders of a business. |
| Domestic Market Operations | These are actions by the Reserve Bank in the short term money market to buy and sell second-hand Commonwealth Government securities in order to influence the cash rate and the general level of interest rates. |
| Dumping | This is the practice of exporting goods to a country at a price lower than their selling price in their country of origin. |
| Dynamic Efficiency | This refers to the economy's ability to shift resources between industries in response to changing patterns of consumer demand. |
| Ecologically Sustainable Development | this can be defined as conserving and enhancing the community's resources so that ecological processes on which life depends are maintained and quality of life, now and in the future, can be improved. |
| Economic Development | This is a broad measure of welfare in a nation that includes indicators of health, education and environmental quality as well as material living standards. |
| Economic Growth | This occurs when there is a sustained increase in a country's productive capacity over time. This is commonly measured by the percentage increase in real Gross Domestic Produce. |
| Economic Policy Mix | This refers to the combination of macroeconomic (fiscal and monetary) and microeconomic policies used by the government to achieve its economic objectives. |
| Economic Problem | This involves the question of how to satisfy unlimited wants with limited resources. |
| Elaborately Transformed Manufactures (ETMs) | These are technologically advanced and high-value-added manufacturing products, such as motor cars, that generally command high prices on international markets. |
| Emerging Markets | This refers to a category of developing economies that are experiencing the fastest rates of growth in the global economy. They include China, South Korea, Brazil, Mexico, Egypt and Poland. |
| Employer Associations | These are organisations that are formed to represent the interests of businesses, especially in industrial relations and in lobbying the government. |
| Enterprise | This involves the organisation of the other factors of production to produce goods and services. The entrepreneur makes the decisions and bares the risk of the business. The return for this operation is profit. |
| Enterprise Bargaining | This refers to negotiations between employers and employees (or their representatives) about pay and work conditions at the level of the individual firm. |
| Equilibrium | This is when quantity demanded is equal to quantity supplied. It is achieved when an individual market when any consumer who is willing to pay the market price for a good/service is satisfied and any producer who offers their goods/services at the market price is able to sell their produce. |
| Equilibrium Level of Income | This refer to the level of income, output and employment at which the spending plans of the various sectors of the economy are identical to the aggregate production plans of the economy. When the aggregate demand is identical to aggregate supply. |
| European Union (EU) | This is an association of 25 European nations that began as a trading bloc establishing a common market for goods/services, capital and labour. The EU members have increasingly become economically and politically integrated and the association has recently expanded to include new members in Eastern, Central and Southern Europe. |
| Excess Capacity | This refers to the situation where a firm or economy is operating below maximum potential output. This is due to unemployed or under-utilised resources |
| Exchange Rates | These refer to the price of one currency in terms of another economy's currency, which facilitates economic transactions between individuals, firms and governments in different economies |
| Exchange Settlement Accounts | These are the funds held by banks with the Reserve Bank of Australia (RBA) in order to settle payment with other banks and the RBA |
| Expansionary Policies | These are policies which attempt to increase aggregate economic activity in the economy |
| Exports | These are goods or services that are produced domestically and purchased by overseas consumers |
| External Diseconomies of Scale | These are the disadvantages faced by a firm because of the growth of the industry in which the firm is operating, and are not the result of a firm changing its own scale of operations |
| External Economies of Scale | These are the advantages that accrue to a firm because of the growth of the industry in which the firm is operating, and is not the result of the change in scale of the firms operations |
| External Stability | This is an aim of government policy that seeks to promote sustainability on the external accounts so that Australia can service its foreign liabilities in the medium to long run and avoid currency volatility |
| Externalities | These are external costs and benefits that private agents in a market do not consider in their decision making process. E.g.: Airlines and passengers do not consider aircraft noise when negotiating airfares |
| Factors of Production | These are any resources that can be used in the production of goods and services. The four main types of resources are; natural resources (or land), capital, labour and enterprise |
| Factor Market | This is a market for any input into the production process |
| Fairness Test | The requirement that any workplace agreements for people earning under $75 000 per year provide fair compensation if the agreement modifies conditions of employment such as penalty rates or overtime loadings. It is administered by the Workplace Authority |
| Financial Aggregate | The Reserve Bank of Australia's three main indicators of the money supply - money base, M3 and broad money |
| Fiscal Policy | A microeconomic policy that can influence reasource allocation, redistribute income and reduce the fluctuations of the business cycle. Its instruments include government spending and taxation and taxation and the budget outcome |
| Fixed Exchange Rate | This is when the value if the economy's currency is officially set by the government or the central bank |
| Flexible Peg | An exchange rate system where the currency's value is fixed at a pre-announced level, but it can be changed by the central bank in response to the forces of supply and demand in foreign exchange markets |
| Floating Exchange Rate | This is when the value of an economy's currency is determined by the forces of demand and supply in foreign exchange markets |
| Foreign Debt | This refers to the total level of outstanding loans owned by Australian residents to overseas residents |
| Foreign Direct Investment (FDI) | This refers to the movement of funds between economies for the purpose of buying companies, firms or a substantial proportion of shares in a company (10 % or more); it is generally considered to be a long term investment and the investor normally intends to play a role in the management of the business |
| Foreign Equity | This is the total value of Australian assests such as land, shares and companies in foreign ownership |
| Foreign Exchange Market (or Forex Market) | This refers to the market in which currencies are traded |
| Foreign Liabilities | These are Australia's total financial obligations (foreign debt + foreign equity) to the rest of the world |
| Free Riders | These are groups or individuals who benefit from a good or service without contributing to the cost of providing it; consequently the good or service is likely to be under-supplied in relation to the total demand |
| Free Trade | This is a situation where there are no artificial barriers to trade imposed by governments for the purpose of shielding domestic producers from foreign competitors |
| Free Trade Agreement of the Americas (FTAA) | This is a proposed free trade agreement including 34 economies in North, Central and South America; it was originally due to come into operation in 2005 but disagreements amoung member economies have delayed its introduction |
| Frictional Unemployment | This occurs when people are unemployed due to time lags involved in the transition between jobs |
| Full Employment | This occurs when it is no longer possible to achieve a sustained reduction in unemployment through stronger economic growth |
| Future Fund | This is a Commonwealth Government investment account that receives the proceeds of buget surpluses and asset sales and invests them in order to generate returns to meet the Commonwealth Government's future superannuation liabilities |
| General Agreement on Tariffs and Trade (GATT) | This was a multilateral trade promotion process that began in 1947, the final round of negotiations finished in 1993 and it was agreed to be replaced by the World Trade Organization in 1995 |
| Geographical Mobility | This refers to the ability of labour to move between different locations to gain higher wages or improved employment oppertunities |
| Gini Coefficient | This is a number between zero and one that measures the extent of income inequality in an economy, calculated by measuring the degree to which the Lorenz curve deviates from the line of equality |
| Gloabal Economy | This refers to the sum of the interactions between the economies of individual countries that are now increasingly linked together into one economic unit |
| Globalisation | This refers to the process of increased integration between different countries and economies and the increased impact of international influences on all aspects of life and economic activity |
| Goods and Services Tax (GST) | This is a 10% sales tax imposed on most goods and services in Australia |
| Government Business Enterprises (GBEs) | Also known as Public Trading Enterprises (PTEs), these are businesses owned and managed by a government at either the Commonwealth or State level |
| Government Expenditure | This is an injection in the circular flow of income which includes all money that the government spends to provide services such as health and education |
| Government Procurement | This refers to the policies and procedures for purchasing goods and services for the use of the government and public trading enterprises |
| Gross Domestic Product (GDP) | This is the total market value of all final goods and services produced in an economy over a period of time |
| Gross National Income (GNI) | This is the total income earned by domestically owned factors of production over a period of time |
| Gross World Product (GWP) | This refers to the sum of total output of goods and services by all economies in the world over a period of time |
| Group of Eight (G8) | This refers to the seven largest industrialised nations (plus Russia) who meet annually to discuss economic and political issues and wield tremendous influence over the global economy (Other members are; US, UK, France, Germany, Italy, Canada and Japan) |
| Hard-Core Unemployment | This refers to long-term unemployed people who may be considered unemployable by employers because of personal circumstances such as drug use or mental or physical disabilities |
| Heavily Indebted Poor Countries (HIPCs) | These are a group of developing countries that suffer extreme external debt sustainability, the World Bank has identified 38 of these (30 of which are located in Africa) |
| Hidden Unemployment | This refers to those people who can be considered unemployed but do not fit the official definition of unemployment and are thus not reflected in the unemployment statistics |
| High-Income Economies | This refers to advanced industrialised economies or developed economies, the group of economies including 24 of the 30 industrialised countries that belong to the Organisation for Economic Cooperation and Development (OECD) as well as 30 other economies, many of which are very small |
| Horizontal Integration | This occurs when a firm takes over another business involved in the same kind of production (i.e. one of its competitors) |
| Household Savings | This is the proportion of total household disposable income not spent on consumption |
| Human Capital | This is the economic concept that the supply of labour cannot be simply measured by the size of the labour force but also by its quality, which can be increased through education and training |
| Human Development Index (HDI) | This is a measure of economic development devised by the United Nations Development Program which takes into account life expectancy at birth, levels of educational attainment and material living standards (as measured by Gross Domestic Product per capita) |
| Hysteresis | This is the process whereby unemployment in the current period results in the persistence of unemployment in future periods as unemployed people can lose their skills, job contracts and motivation to work |
| Imperfect Competition | This is any market structure that is not a perfectly competitive market, which gives individual firms the ability to influence price levels |
| Imported Inflation | This occurs when there is an increase in the price of imports either due to inflation in the economies of its trading partners or because of a depreciation of the currency which results in higher prices of consumer imports and imported inputs |
| Imports | These are goods and services that are produced overseas and purchased by domestic consumers |
| Income | This is the amount of money or other benefits measured in money terms which flow to individuals or households usually for their contribution to the production process or as a direct payment from the government over a period of time |
| Income Distribution | This refers to the way in which an economy's income is spread among the members of different social and socio-economic groups |
| Indirect Tax | This is a tax which is levied on an aspect of economic activity other than a person or an organisation's income, such as sales tax |
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