In the HSC economics course, there are many specific terms which you must know and use in your responses to questions. These terms will allow your arguments to flow, creating nuanced and content appropriate responses.

A

Term	Definition
Absolute poverty	A condition where household income is below a necessary level to maintain basic living standards (food, shelter, healthcare)
Aggregate Demand	The total demand for goods and services within an economy at a given time and price level
Aggregate Supply	The total supply of goods and services produced within an economy at a given time and price level
Allocative Efficiency	A state where resources are allocated in a way that maximises the net benefit attained through their use
Automatic Stabilisers	Economic policies and programs that automatically help to reduce fluctuations in the economy without additional government actions
Average Propensity to Consume (APC)	The ratio of total consumption to total income, showing the percentage of income spent on consumption
Average Propensity to Save (APS)	The ratio of total savings to total income, showing the percentage of income that is saved

B

Term	Definition
Balance of Payments	A record of all transactions made between entities in one country and the rest of the world over a defined period
Brexit	The withdrawal of the United Kingdom from the European Union, which officially occurred on January 31, 2020
Budget Deficit	A financial situation where a government's total expenditures exceed its total revenues for a specific period
Budget Surplus	A financial situation where a government's total revenues exceed its total expenditures for a specific period
Business Cycle	The fluctuations in economic activity that an economy experiences over time, typically consisting of expansion, peak, contraction, and trough phases

C

Term	Definition
Capital	Physical assets (like machinery, buildings) or financial assets used in production of goods and services
Capital Gains	The profit earned from the sale of an asset, such as stocks or property
Carbon Tax	A tax levied on the carbon emissions released in the production of goods and services
Cash Rate	The interest rate that banks charge each other for overnight loans, often set by a country's central bank
Ceteris Paribus	A Latin phrase meaning "all other things being equal," used in economic analysis to isolate the effect of one variable
Clean Float	An exchange rate system where the value of a currency is determined by supply and demand without government intervention
Collective Wants	Goods or services that benefit society as a whole and are typically provided by the government
Collusion	An agreement between firms to act together to reduce competition, often illegal
Comparative Advantage	The ability of an individual or country to produce a good or service at a lower opportunity cost than others
Constitution	The fundamental principles by which a state or organisation is governed
Consumer Price Index (CPI)	A measure of the average change in prices over time that consumers pay for a basket of goods and services
Consumer Sovereignty	The idea that consumers ultimately determine which goods and services are produced through their purchasing decisions
Cost-Push Inflation	Inflation caused by increases in the cost of production inputs, such as wages or raw materials
Council of Financial Regulators	A coordinating body for Australia's main financial regulatory agencies
Counter-Cyclical Policies	Government policies designed to counteract the effects of economic cycles, typically by stimulating the economy during downturns
Crowding out Effect	When increased government spending reduces private sector spending
Cyclical Unemployment	Unemployment that results from the business cycle, rising during recessions and falling during economic expansions

D

Term	Definition
Debt Servicing Ratio	The proportion of income required to cover debt repayments, often used to assess financial health
Demand	The quantity of a good or service that consumers are willing and able to buy at a given price
Demand-Pull Inflation	Inflation caused by an increase in aggregate demand outpacing the economy's production capacity
Depreciation	The decrease in value of an asset over time, usually due to wear and tear or obsolescence
Deregulation	The reduction or elimination of government power in a particular industry to encourage competition
Devaluation	A deliberate downward adjustment to the value of a country's currency relative to another currency, group of currencies, or currency standard
Developing Economies	Nations with a lower standard of living, underdeveloped industrial base, and low Human Development Index relative to other countries
Diminishing Marginal Returns	The principle that as more units of a variable input are added to fixed inputs, the marginal output eventually decreases
Direct Tax	A tax paid directly by an individual or organisation to the imposing entity (usually government)
Dirty Float	An exchange rate system where the government occasionally intervenes to influence the currency's value
Diseconomies of Scale	The increase in average costs as a firm grows beyond its optimal size
Dumping	The practice of selling goods in a foreign market at prices below the home market price or cost of production
Dutch Disease	The negative consequences arising from large increases in a country's currency value, typically due to a sharp surge in natural resource exports
Dynamic Efficiency	The optimal rate of innovation and investment to enhance productive capacity over time

E

Term	Definition
Economic Development	The process of improving the quality of life and economic well-being of a country or region, often measured by indicators beyond just GDP
Economic Growth	An increase in the production of goods and services in an economy over time, typically measured by the growth rate of GDP
Emerging Economies	Nations that are investing in more productive capacity and are moving away from traditional economies based on agriculture and raw material exports
Equilibrium	A state in which economic forces are balanced, often referring to the point where supply equals demand
Euro Area	A monetary union of European Union member states that have adopted the euro as their primary currency
Exchange Rates	The price of one currency in terms of another currency
Exports	Goods and services produced in one country and sold to buyers in another country
External Diseconomies of Scale	Negative externalities that affect an entire industry as it grows, leading to higher costs for all firms
External Economies of Scale	Positive externalities that benefit an entire industry as it grows, leading to lower costs for all firms
External Stability	A country's ability to finance its international obligations and maintain a stable exchange rate
Externalities	The costs or benefits that affect a party who did not choose to incur those costs or benefits

F

Term	Definition
Factors of Production	The inputs used to produce goods and services, typically categorised as land, labor, capital, and entrepreneurship
Factor Market	A market where factors of production are bought and sold, such as the labor market or capital market
Fair Work Commission	Australia's national workplace relations tribunal, responsible for maintaining a safety net of minimum wages and employment conditions
Financial Aggregates	Broad measures of the total amount of money and credit in an economy
Fiscal Policy	Government policy that uses taxation and spending to influence the economy
Fixed Exchange Rate	An exchange rate system where a currency's value is fixed against another currency or basket of currencies
Flexible Peg	An exchange rate system where a currency is allowed to fluctuate within a narrow band around a fixed rate
Floating Exchange Rate	An exchange rate system where a currency's value is determined by supply and demand in the foreign exchange market
Foreign Direct Investment (FDI)	An investment made by a company or individual in one country into business interests in another country
Foreign Debt	The amount of money that a country owes to foreign lenders
Foreign Liabilities	The total financial obligations that a country owes to foreign creditors
Free Riders	Individuals or entities who benefit from resources, goods, or services without paying for the cost
Frictional Unemployment	Short-term unemployment arising from the process of workers changing jobs
Full Employment	A situation where all available labor resources are being used in the most economically efficient way

G

Term	Definition
Gini Coefficient	A statistical measure of income inequality ranging from 0 to 1, where 0 represents perfect equality and 1 represents perfect inequality
Goods and Services Tax (GST)	A value-added tax on most goods and services sold for domestic consumption, commonly used in many countries including Australia
Gross Domestic Product (GDP)	The total monetary value of all finished goods and services produced within a country's borders in a specific time period
Gross National Income (GNI)	The total domestic and foreign output claimed by residents of a country, consisting of GDP plus factor incomes earned by foreign residents, minus income earned in the domestic economy by nonresidents
Gross World Product (GWP)	The combined gross national product of all countries in the world, representing the total global economic output

H

Term	Definition
Hard-Core Unemployment	Long-term unemployment affecting workers who are persistently jobless due to factors like lack of skills, discrimination, or structural changes in the economy
Hidden Unemployment	Unemployment that does not appear in official statistics, including discouraged workers who have stopped looking for jobs or underemployed individuals
Horizontal Integration	The acquisition or merger of companies in the same industry and at the same stage of production, often to increase market share or efficiency
Household Savings	The difference between a household's disposable income and its consumption expenditure
Human Capital	The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic well-being
Human Development Index (HDI)	A composite statistic of life expectancy, education, and per capita income indicators, used to rank countries into four tiers of human development

I

Term	Definition
Imperfect Competition	A market structure where firms have some control over price and there are barriers to entry, unlike in perfect competition
Imported Inflation	Inflation in an economy caused by increases in the prices of imported goods and services
Imports	Goods and services bought by residents of a country but produced in other countries
Income	The flow of money or resources accruing to an individual or group over a given time period
Indirect Tax	A tax collected by an intermediary from the person who bears the ultimate economic burden of the tax
Infant Industry Argument	The economic rationale for protecting new industries in developing economies until they can achieve economies of scale
Inflation	A sustained increase in the general price level of goods and services in an economy over time
Inflation Targeting	A monetary policy strategy where a central bank publicly announces an inflation rate target and then attempts to steer actual inflation towards that target
Inflationary Expectations	The expectations that consumers and businesses have about future inflation rates
Injections	Additions to the circular flow of income, including investment, government spending, and exports
Interest	The cost of borrowing money, typically expressed as a percentage of the amount borrowed
Interest Rate Differential	The difference in interest rates between two similar interest-bearing assets
Intermediate Goods	Goods used as inputs in the production of other goods, rather than being sold to final consumers
Internal Diseconomies of Scale	Factors that cause a firm's average costs to rise as the scale of its operations increases
Internal Economies of Scale	Factors that cause a firm's average costs to fall as the scale of its operations increases
International Convergence	The hypothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies

J

Term	Definition
J-Curve Effect	A phenomenon where a country's trade balance initially worsens following a depreciation or devaluation of its currency, before improving in the long run. The graph of this effect resembles the letter J.
Job active	Australia's government-funded employment service that helps job seekers find and keep jobs, and helps employers find staff. It replaced the previous Job Services Australia program in 2015.

K

Term	Definition
Kyoto Protocol	An international treaty adopted in 1997 that commits state parties to reduce greenhouse gas emissions. It operationalises the United Nations Framework Convention on Climate Change by setting internationally binding emission reduction targets.

L

Term	Definition
Labour	The human effort, both physical and mental, used in the production of goods and services
Labour Force	The total number of people employed or seeking employment in an economy
Labour Market Policies	Government actions to address labour market issues, such as unemployment, working conditions, and skill development
Labour Productivity	The output produced per unit of labour input, typically measured as output per worker or output per hour worked
Land	In economics, all natural resources used in production, including soil, minerals, and water
Leakages	Withdrawals from the circular flow of income, including savings, taxes, and imports
Least Developed Countries	A UN classification for countries with the lowest socioeconomic development, based on income, human resources, and economic vulnerability
Local Content Rules	Regulations requiring a certain percentage of intermediate goods used in production processes to be sourced from domestic producers
Long-term Unemployment	Unemployment lasting for a year or more, often leading to skill deterioration and reduced employability
Lorenz Curve	A graphical representation of income or wealth distribution, used to illustrate inequality within a population

M

Term	Definition
Macroeconomics Policies	Government strategies aimed at influencing the overall economy, including fiscal and monetary policies
Managed Exchange Rate	An exchange rate system where the currency's value is influenced by government intervention, but not fixed
Marginal Propensity to Consume (MPC)	The proportion of an increase in income that is spent on consumption
Marginal Propensity to Save (MPS)	The proportion of an increase in income that is saved rather than spent
Marginal Rate of Tax	The rate of tax applied to the last dollar of taxable income
Market Clearing	The economic situation where supply equals demand at the current price
Market Failure	A situation where the free market fails to allocate resources efficiently
Merit Good	A good or service that the government believes is under-consumed in a free market, often due to positive externalities
Microeconomic Policies	Government policies aimed at influencing decision-making by individuals, households, and firms
Monetary Policies	Central bank actions to control the money supply and interest rates to achieve economic objectives
Monopolistic Competition	A market structure with many firms selling differentiated products
Monopoly	A market structure where a single firm has control over the entire supply of a good or service
Multi-factor Productivity	A measure of economic performance that accounts for the effects of technological change and efficiency improvements
Multiplier	The ratio of a change in national income to the initial change in spending that caused it

N

Term	Definition
Natural Monopoly	A market structure where a single firm can supply the entire market at a lower cost than two or more firms
Natural Rate of Unemployment	The lowest sustainable unemployment rate an economy can achieve without triggering inflation
Negative Externality	A cost that affects a third party who did not choose to incur that cost
Net Errors and Omissions	A balancing item in balance of payments accounts to reconcile any statistical discrepancies
Net Foreign Debt	The value of a country's gross foreign debt minus its foreign assets
Net Foreign Equity	The difference between a country's foreign equity assets and liabilities
Net Foreign Liabilities	The total of a country's foreign financial obligations minus its foreign-owned assets
Nominal Wage	The amount of money earned by a worker, not adjusted for inflation
Non-Accelerating Inflation Rate of Unemployment (NAIRU)	The level of unemployment below which inflation rises
Non-Excludable Goods	Goods or services that cannot be provided to one person without being available to others
Non-Rival Goods	Goods or services whose consumption by one person does not reduce availability to others

O

Term	Definition
Occupational Mobility	The ease with which workers can move between different occupations or types of work
Okun's Law	An empirical relationship between unemployment and GDP growth, suggesting that a 1% increase in unemployment typically correlates with a 2% fall in GDP
Oligopoly	A market structure characterised by a small number of large firms that dominate the industry
Opportunity Cost	The value of the next best alternative forgone when making a choice

P

Term	Definition
Participation rate	The proportion of the working-age population that is either employed or actively seeking employment
Perfectly Elastic Demand	A situation where any increase in price results in demand falling to zero
Perfectly Elastic Supply	A situation where suppliers can produce any quantity at a given price
Phillips Curve	An economic concept showing the inverse relationship between unemployment and inflation rates
Positive Externality	A benefit that affects a third party who did not choose to incur that benefit
Price Ceiling	A government-imposed upper limit on the price of a good or service
Price Floor	A government-imposed lower limit on the price of a good or service
Price Stability	A state of the economy where the general price level remains relatively constant over time
Price Mechanism	The system in a market economy where prices adjust to allocate resources efficiently
Private Good	A good that is both excludable and rivalrous in consumption
Private Sector	The part of the economy run by private individuals or groups, usually as a means of enterprise for profit
Privatisation	The transfer of ownership of property or businesses from the public sector to the private sector
Progressive Tax System	A tax system where the tax rate increases as the taxable amount increases
Proportional Tax System	A tax system where the tax rate remains constant regardless of the taxable amount
Public Good	A good that is both non-excludable and non-rivalrous in consumption
Public Sector	The part of the economy concerned with providing basic government services
Public Trading Enterprises (PTEs)	Government-owned businesses that operate with a degree of financial independence
Purchasing Power Parity (PPP)	A theory that exchange rates between currencies are in equilibrium when their purchasing power is the same in each country

Q

Term	Definition
Quantitative Easing	An unconventional monetary policy in which a central bank purchases government securities or other securities from the market to lower interest rates and increase the money supply
Quotas	Government-imposed limits on the quantity or value of goods that can be imported or exported during a particular period

R

Term	Definition
Real Gross Domestic Product	The total value of all goods and services produced by an economy in a given year, adjusted for inflation
Real Wage	The wage rate adjusted for inflation, representing the actual purchasing power of a worker's income
Recession	A period of temporary economic decline, generally identified by a fall in GDP in two successive quarters
Regressive Tax System	A tax system where the tax rate decreases as the taxable amount increases
Regulation	Government rules or laws designed to control the conduct of businesses and individuals
Relative Poverty	A measure of income inequality, typically defined as having significantly less income and wealth than other members of society
Reserve Assets	Foreign financial assets held by a country's central bank that can be used to meet balance of payments needs
Revaluation	An upward adjustment to the official exchange rate of a currency in a fixed exchange rate system

S

Term	Definition
Satisficing Behaviour	A decision-making strategy where individuals choose an option that is "good enough" rather than optimal, due to limited information or cognitive resources
Seasonal Unemployment	Unemployment that occurs due to regular and predictable changes in the economy, often related to weather or holiday patterns
Secondary Financial Markets	Markets where previously issued financial instruments, such as stocks and bonds, are bought and sold
Specialisation of Labour	The concentration of workers on specific tasks or in specific roles to increase overall productivity
Stagflation	An economic situation characterised by persistent high inflation combined with high unemployment and stagnant demand
Structural Change	Long-term shifts in the fundamental structure of an economy, often due to technological advances or changes in consumer preferences
Structural Unemployment	Long-term unemployment caused by a mismatch between the skills workers have and the skills required for available jobs
Stock Exchange	A marketplace where shares of publicly listed companies are traded
Subsidies	Government payments to individuals or businesses to encourage production or consumption of a particular good or service
Superannuation	A pension program where a company and/or employees make regular contributions to a fund for the employees' future retirement
Supply	The amount of a good or service that producers are willing and able to offer for sale at each possible price

T

Term	Definition
Tariffs	Taxes imposed on imported goods and services
Taxation	The system by which a government collects money from citizens and businesses to fund public expenditures
Technical Efficiency	The ability to produce the maximum output from a given set of inputs
Technical Optimum	The point at which maximum output is achieved from given inputs in a production process
Terms of Trade	The ratio of export prices to import prices for a country
Total Outlay Method	An approach to measuring price elasticity of demand by comparing changes in total revenue as price changes
Trade Bloc	A group of countries that have agreed to reduce or eliminate trade barriers among themselves
Trade Union	An organisation of workers formed to protect their rights and negotiate with employers
Trade Weighted Index (TWI)	A measure of a currency's value against a basket of other currencies, weighted by the amount of trade with each country
Tragedy of the Commons	A situation where individual users, acting independently according to their own self-interest, behave contrary to the common good by depleting or spoiling a shared resource
Transition Economies	Countries changing from a centrally planned economy to a market economy
Transmission Mechanism	The process by which changes in monetary policy affect the broader economy

U

Term	Definition
Underemployment	A situation where workers are employed but not in their desired capacity, whether in terms of hours, pay, or skill level
Underlying Inflation	A measure of inflation that excludes volatile items (like food and energy) to reveal the core trend in price changes
Unemployment	The state of being without a job while actively seeking work
Unemployment Rate	The percentage of the labor force that is unemployed but actively seeking employment
Unit Elasticity of Demand	A situation where the percentage change in quantity demanded is exactly equal to the percentage change in price, resulting in an elasticity of precisely 1

V

Term	Definition
Valuation Effect	Changes in the value of a country's foreign assets and liabilities due to exchange rate fluctuations or price changes, rather than transactions
Voluntary Export Restraints	Agreements between countries where an exporting country limits its exports to a particular country to avoid formal trade restrictions

W

Term	Definition
Wants	Desires for goods and services that are not essential for survival but can improve quality of life
Wage Price Index	A measure of changes in wage and salary costs faced by employers
Wealth Effect	The change in spending that accompanies a change in perceived wealth
Workable Competition	A market structure between perfect competition and monopoly, with enough competition to ensure reasonable prices and service