Glossary

Plain-English definitions of every economic term on the site, with an example and where it's used. On lesson pages, terms in dotted underline open their definition in place.

110 terms

Accounting identity

A relationship that is true by definition, because of how the quantities are measured, such as assets equalling liabilities plus net worth. An identity cannot be wrong, but on its own it does not say what causes what, or what policy should be.

Example The sectoral balances always add to zero. That tells you a government surplus means a deficit somewhere else, not whether a surplus is a good idea.

Explained in Sectoral balances · Assets, liabilities and balance sheets
Used in Trade, the current account and capital flows · Why economists disagree

Aggregate demand

Total spending on an economy's goods and services: by households, businesses and governments, plus what overseas buyers spend on its exports, minus what is spent on imports. When it outruns what the economy can produce, prices tend to rise.

Example When households, businesses and governments all spend strongly at once and firms say they can lift prices without losing customers, aggregate demand is running ahead of supply.

Explained in Aggregate demand and aggregate supply
Used in What limits government spending? Demand, capacity, inflation and jobs · Demand, supply and the price level · Aggregate demand and aggregate supply · Aggregate demand and aggregate supply

AOFM

The Australian Office of Financial Management, the Commonwealth agency that manages the government's debt and cash. It keeps enough money in the government's accounts at the RBA to meet each day's payments, and issues Treasury Bonds and Treasury Notes by competitive tender.

Example When spending exceeds revenue, the AOFM issues bonds on a published schedule, and registered bidders compete to buy them at tender.

Explained in Government bonds and bond markets · Government deficits, surpluses and debt
Used in Who does what: Australia's actual arrangements · The simplified model and the real one · Worked example: one day in the Government's bank account · Modern Monetary Theory - A Primer · Fiscal Policy · Where Government spending is contested and 11 more

Austerity

Cutting government spending or raising taxes to reduce a deficit or debt, especially during a downturn. Supporters see it as restoring sound finances or market confidence; critics argue it deepens slumps. 'Fiscal consolidation' is the more neutral term for similar measures.

Example After 2010 Greece cut spending and raised taxes as a condition of loans from European governments and the IMF. Its economy shrank sharply; how much austerity was to blame is debated.

Explained in Fiscal policy and monetary policy · Government deficits, surpluses and debt
Used in Whose interest does the IMF really serve? Fadhel Kaboub explains · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" · Fiscal multipliers

Automatic stabilisers

Parts of the budget that move with the economy without any new decision. In a downturn more people qualify for payments and less tax comes in, so the deficit widens and cushions the fall in spending. In a boom the reverse happens.

Example If unemployment rises from 4.1 to 4.3 per cent, more people receive JobSeeker and income tax receipts fall, so the budget worsens a little and supports spending.

Explained in Fiscal policy and monetary policy · Government deficits, surpluses and debt
Used in Fiscal Policy · Pavlina Tcherneva — The Case for a Job Guarantee · Fiscal policy and monetary policy · How the RBA uses interest rates to fight inflation · The government has to balance its budget like a household. · Higher interest rates are the only effective way to control inflation.

Balance of payments

A country's accounts of its transactions with the rest of the world. The current account records trade and income; the capital and financial account records who buys whose assets. Under double-entry bookkeeping the two sum to zero, apart from measurement error.

Example If Australia buys $10 billion more from the world than it earns, foreigners must add about $10 billion to their holdings of Australian shares, bonds, property or deposits.

Explained in Exchange rates and international trade
Used in Trade, the current account and capital flows · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost · Whose interest does the IMF really serve? Fadhel Kaboub explains · Where The global economy is contested · Exchange rates and international trade · Why economists disagree and 3 more

Balance sheet

A statement of what a person or organisation owns (its assets) and owes (its liabilities) at a point in time. Every financial asset is someone else's liability, so balance sheets show who owes what to whom.

Example Your $1,000 savings balance appears as an asset on your balance sheet and as a $1,000 liability on your bank's.

Explained in Assets, liabilities and balance sheets
Used in Money as an IOU: reading a balance sheet · The simplified model and the real one · Assets, liabilities and what a deposit really is · How a loan creates a deposit, and repayment destroys it · Worked example: a bank's balance sheet, step by step · Money creation in the modern economy - Quarterly Bulletin and 7 more

Bank capital

The part of a bank's funding that belongs to its shareholders: the amount by which its assets exceed its liabilities. APRA requires banks to hold capital, weighted by the riskiness of their loans, so they can absorb losses without failing.

Example APRA's rules give home loans lower risk weights than unsecured small business loans, so a $500,000 mortgage needs less capital behind it than a business loan of the same size.

Explained in Assets, liabilities and balance sheets · Commercial bank deposits and central bank reserves
Used in Ann Pettifor - The Production of Money

Bank deposit

Money held in an account with a bank. Legally it is the bank's debt to you: a promise to pay you cash on request or to transfer the money wherever you tell it. Deposits make up most of the money Australians use.

Example If your account shows $2,000, your bank owes you $2,000. When a bank approves a $40,000 car loan, it credits a brand new $40,000 deposit to the borrower's account.

Explained in Money, currency and credit · Commercial bank deposits and central bank reserves · Government-issued money and commercial bank money
Used in Three kinds of money in Australia · Money in the modern economy: an introduction - Quarterly Bulletin · Worked example: one day in the Government's bank account · Modern Monetary Theory - A Primer · Money creation in the modern economy - Quarterly Bulletin · How Do Banks Create Money? A Walk-Through of Richard Werner's Papers and 7 more

Barter myth

Critics' name for the textbook story that people first traded by barter and invented money to escape its inconvenience. Anthropologists report finding no society that ran mainly on barter before money; many economists treat the story as a teaching model rather than history.

Example The story imagines a farmer swapping grain for a fisherman's catch. The earliest Mesopotamian records instead show accounts of goods and dues owed, thousands of years before coins.

Explained in Money, currency and credit
Used in The MYTH of Barter, and why it harms us

Bond yield

The annual return an investor gets from holding a bond at its current market price, as a percentage. When bond prices fall, yields rise, and the reverse. Yields at tender set the interest a government pays on new borrowing.

Example A bond paying $40 a year on a $1,000 face value yields 4 per cent if bought for $1,000. Bought for $800, the same $40 is a 5 per cent yield.

Explained in Government bonds and bond markets · Interest rates
Used in Where Government spending is contested · Interest rates · Government borrowing and bond markets · Public debt will burden future generations. · Starting check · Explain what mainstream economists argue

Broad money

The widest common measure of the money held by the public: notes and coins plus deposits with banks and other lenders. It leaves out the settlement balances that banks hold at the central bank.

Example In mid-2018 Australians held about $74 billion in notes and coins out of roughly $2.1 trillion of broad money, so cash was only about 3.5 per cent of it.

Explained in Money, currency and credit · Commercial bank deposits and central bank reserves
Used in Three kinds of money in Australia · Money in the modern economy: an introduction - Quarterly Bulletin · Ann Pettifor - The Production of Money · Money, currency and credit

Budget deficit

The amount by which a government's spending exceeds its revenue over a period, usually a year. A surplus is the reverse. Treasury's headline measure is the underlying cash balance. A deficit is a flow; debt is the stock built up, mainly, from past deficits.

Example The May 2026 Budget forecast an underlying cash deficit of $31.5 billion for 2026–27, about 1.0 per cent of GDP.

Explained in Government deficits, surpluses and debt · Sectoral balances
Used in How To Create A Currency From Scratch (Long Version) · Deficits, debt and interest · Stephanie Kelton: The big myth of government deficits | TED · How a loan creates a deposit, and repayment destroys it · Where Banks & debt is contested · Professor Bill Mitchell - Inflation Targetting and 13 more

Buffer stock

A stockpile that an authority buys when a product is plentiful and sells when it is scarce, to keep its price stable. MMT economists apply the idea to labour: a Job Guarantee would hold a buffer stock of workers employed at a fixed wage.

Example Under Australia's wool reserve price scheme, from 1974, growers were guaranteed a minimum price. It was suspended in 1991, leaving a stockpile of 4.7 million bales.

Explained in Inflation and purchasing power · Employment, unemployment and economic capacity
Used in Isabella Weber: The Economics and Politics of Seller's Inflation · Professor Bill Mitchell - Inflation Targetting · Professor Bill Mitchell - The Government Chooses the Unemployment Rate · MMT: What Is A Job Guarantee (or "Labor Standard")? · Competing explanations of inflation · Unemployment has to increase to control inflation. and 1 more

Capital gains tax

Tax on the profit from selling an asset, such as shares or an investment property, for more than it cost. Australia has no separate rate: the taxable part of the gain is added to income and taxed at the seller's marginal rate. The family home is generally exempt.

Example An investor who buys shares for $20,000 and sells them for $30,000 makes a $10,000 capital gain. If held over a year, half is added to her taxable income.

Used in What taxes do · Negative Gearing Explained | Greg Jericho on the Project · Tax settings: negative gearing and the capital gains discount · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler · Where Housing is contested

Capital gains tax discount

The rule, since September 1999, that individuals and trusts selling an asset held over 12 months are taxed on only half the gain. It replaced adjusting gains for inflation. Changes passed in 2026 replace it, for gains accruing from 1 July 2027, with an inflation adjustment and a minimum 30 per cent tax; new-build investors can choose the old discount.

Example A $300,000 gain on a rental property held for five years adds $150,000 to the investor's taxable income under the 50 per cent discount.

Used in Negative Gearing Explained | Greg Jericho on the Project · Tax settings: negative gearing and the capital gains discount · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler · Where Housing is contested · We must raise billionaire taxes before funding new public services. · Starting check

Cash rate

The interest rate on unsecured overnight loans between banks. The RBA sets a target for it, and changes flow through to mortgage, business loan and deposit rates. It is the RBA's main tool for influencing spending and inflation.

Example The RBA raised the cash rate target thirteen times between May 2022 and November 2023, from 0.10 to 4.35 per cent, adding about $21,250 a year to the interest on a $500,000 variable loan.

Explained in Interest rates · Fiscal policy and monetary policy
Used in Who does what: Australia's actual arrangements · What limits bank lending · How a cash rate rise is meant to work · Australia's Inflation Target · How the RBA thinks about unemployment and inflation · Professor Bill Mitchell - The Government Chooses the Unemployment Rate and 15 more

Chartalism

The state theory of money, associated with Georg Friedrich Knapp and, today, MMT economists. It holds that money is whatever the state accepts in payment, especially for taxes, so a tax payable in a currency creates demand for it. Many economists see taxes as one support among several.

Example Australian tax debts must be paid in Australian dollars. Chartalists argue this is why everyone with a tax bill needs dollars, and so why people work to earn them.

Explained in Money, currency and credit · Government-issued money and commercial bank money
Used in Three theories of where money came from · How To Create A Currency From Scratch (Long Version) · Professor L Randall Wray | The History and Nature of Money | January 2024 · Where What is money? is contested · Modern Monetary Theory

Commodity theory of money

The theory, associated with Adam Smith and Carl Menger, that money grew out of barter as traders came to accept the most widely wanted goods, such as gold and silver. Many textbooks still tell this story; anthropologists dispute the barter part.

Example On this view a gold coin was valuable because of its metal. It could be weighed and used anywhere, without relying on any issuer's promise.

Explained in Money, currency and credit
Used in Three theories of where money came from · Professor L Randall Wray | The History and Nature of Money | January 2024 · Where What is money? is contested

Consolidated government

A simplified model, used by MMT economists, that treats the Treasury and the central bank as one unit. In it, spending simply credits bank accounts and taxes debit them. Critics say it skips the arrangements and long-standing practice that keep Australia's central bank out of financing the budget.

Example In the consolidated model, an AOFM bond sale swaps one government liability, settlement balances, for another, an interest-paying bond. Treasury describes the same sale as borrowing to fund a deficit.

Explained in Fiscal policy and monetary policy · Government-issued money and commercial bank money
Used in The simplified model and the real one · The Money System in Five Minutes

Consolidated Revenue Fund

Under section 81 of the Australian Constitution, all Commonwealth receipts form one Consolidated Revenue Fund. Section 83 says no money can be drawn from it except under an appropriation made by law, so Parliament must authorise government spending.

Example Each budget comes with Appropriation Bills. Unless Parliament passes them, or an existing law already appropriates the money, the government cannot lawfully spend on those programs.

Explained in Fiscal policy and monetary policy
Used in The rules around revenue · Universal Healthcare Probably Requires LOWER Taxes, Not Higher · Where Tax is contested · How will Australia pay for Medicare? · Explain the difference between financial and real-resource limits

Consumer Price Index

The Australian Bureau of Statistics' measure of the prices households pay for a basket of goods and services. Its percentage change over a year is the usual measure of inflation. A complete monthly CPI began in late 2025.

Example The CPI rose 7.8 per cent over the year to December 2022, the fastest rate since 1990.

Explained in Inflation and purchasing power
Used in Demand, supply and the price level · Wages, profits and the rules of the game · Sellers Inflation [Isabella Weber] · Professor Bill Mitchell - Inflation Targetting · Where Inflation is contested · What an exchange rate is, and why Australia's floats and 6 more

Cost-push inflation

Inflation caused by something that makes production dearer or scarcer, such as an oil price spike, a pandemic shutdown or floods destroying crops, rather than by stronger demand. Such events are called supply shocks. Real episodes usually mix supply and demand.

Example After Russia invaded Ukraine in 2022, energy and grain prices jumped worldwide, raising costs for Australian businesses whatever their customers were spending.

Explained in Inflation and purchasing power · Aggregate demand and aggregate supply
Used in What limits government spending? Demand, capacity, inflation and jobs · Demand, supply and the price level · Expectations: why beliefs about inflation matter · Wages, profits and the rules of the game · Australia's Inflation Target · Sellers Inflation [Isabella Weber] and 14 more

Credit theory of money

The theory, set out by Alfred Mitchell-Innes in 1913, that money is a record of debt: whoever issues it owes something to whoever holds it, and must accept it back in payment. MMT economists such as Randall Wray combine it with chartalism.

Example A pizza voucher fits the credit theory: the pizzeria owes a pizza to whoever holds it, and once the voucher comes back it is cancelled.

Currency issuer

A government that issues its own currency, through its central bank, and owes its debts in that currency. It cannot run out of that currency or be forced to default on those debts, but it can still face inflation, real-resource, legal, political and exchange-rate limits.

Example Australia's federal government issues the Australian dollar and borrows in it. The NSW Government uses the dollar but does not issue it, so it must raise or borrow dollars before it spends.

Explained in Government-issued money and commercial bank money · Fiscal policy and monetary policy · Government deficits, surpluses and debt
Used in Stephanie Kelton: The big myth of government deficits | TED · Modern Monetary Theory - A Primer · Fiscal Policy · Bill Mitchell: Demystifying Modern Monetary Theory · Ann Pettifor - The Production of Money · Where Banks & debt is contested and 22 more

Currency peg

A commitment to hold a currency at a fixed rate, or within a narrow band, against another currency. It buys stability but gives up independent interest-rate policy, because rates must adjust to defend the peg. A currency board is a strict form.

Example Hong Kong keeps its dollar between 7.75 and 7.85 to the US dollar, and its monetary base is fully backed by US dollar assets.

Explained in Exchange rates and international trade
Used in Degrees of monetary sovereignty · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" · Where The global economy is contested · Modern Monetary Theory · Exchange-rate and external-sector constraints

Currency union

A group of countries that share one currency and one central bank. In the Eurozone, 21 of the 27 EU member states use the euro, issued by the European Central Bank, so member governments spend and borrow in a currency none of them issues alone.

Example Greece borrows in euros, which it cannot issue, so investors can doubt its ability to repay in a way that does not apply to Australia's federal government and its Australian-dollar debt.

Explained in Exchange rates and international trade · Government-issued money and commercial bank money
Used in Bill Mitchell: Demystifying Modern Monetary Theory · Where Banks & debt is contested · Sellers Inflation [Isabella Weber] · Isabella Weber: The Economics and Politics of Seller's Inflation · Degrees of monetary sovereignty · Whose interest does the IMF really serve? Fadhel Kaboub explains and 5 more

Current account

The record of a country's trade in goods and services (the trade balance), plus income paid and received on cross-border investments and some transfers. A current account deficit is matched by foreigners adding to their holdings of the country's assets.

Example Australia ran current account deficits for most years from the mid-1970s, moved into surplus in mid-2019, and was back in deficit by $27.2 billion in the June quarter of 2026.

Explained in Exchange rates and international trade · Sectoral balances
Used in Sectoral balances in plain words · Stephanie Kelton: The big myth of government deficits | TED · Trade, the current account and capital flows · RSA ANIMATE: Economics is for Everyone! · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" and 9 more

Cyclical unemployment

Unemployment that rises when total spending in the economy falls, as in a recession, and falls when spending recovers. The RBA says interest rates mainly affect this kind. MMT economists argue much unemployment labelled structural is really a long-running shortage of spending.

Example When households cut back in a downturn and shops and builders lay off staff across the country, the extra unemployment is cyclical.

Explained in Employment, unemployment and economic capacity · Aggregate demand and aggregate supply
Used in Underemployment and the kinds of unemployment · Professor Bill Mitchell - The Government Chooses the Unemployment Rate · Labour markets and unemployment · Compare policy options

Debt deflation

A spiral, described by Irving Fisher in the 1930s and later by Hyman Minsky and Steve Keen, in which heavily indebted borrowers cut spending and sell assets to repay debts, pushing prices and incomes down and making the remaining debts harder to repay.

Example Keen argues that if Australian households repaid mortgages faster than they took out new ones, falling credit could drag house prices and spending down together. Most economists see that risk as smaller.

Explained in Public debt versus private debt · Inflation and purchasing power
Used in What Economists Aren't Telling Us About the Property Market | Steve Keen, Economist

Debt-to-GDP ratio

Government debt divided by the value of everything the economy produces in a year. Treasury and the Parliamentary Budget Office judge sustainability partly by whether it is stable or falling. It can fall even during a deficit if the economy grows fast enough.

Example Debt of $1,000 billion against GDP of $2,800 billion is 35.7 per cent. Add a $40 billion deficit, let GDP grow 5 per cent, and the ratio falls to about 35.4 per cent.

Explained in Government deficits, surpluses and debt · GDP and national income
Used in Where Government spending is contested · Fiscal sustainability · Starting check · Explain deficits, debt and who holds them · Explain what mainstream economists argue

Deflation

A fall in the general level of prices across the economy, the opposite of inflation. Persistent deflation can lead people to delay spending, and it makes existing debts harder to repay, because incomes fall while debts stay the same.

Example Japan had long stretches of mild deflation from the late 1990s. A one-off fall in the price of one product, such as bananas after a bumper harvest, is not deflation.

Explained in Inflation and purchasing power
Used in Inflation and purchasing power · Starting check

Demand-pull inflation

Inflation caused by total spending running ahead of what the economy can produce, so businesses can raise prices and still sell everything, and compete harder for scarce workers.

Example Unemployment is very low, firms across many industries cannot find staff, and most say they can lift prices without losing customers: the classic signs of demand-pull inflation.

Explained in Inflation and purchasing power · Aggregate demand and aggregate supply
Used in Demand, supply and the price level · Aggregate demand and aggregate supply · Aggregate demand and aggregate supply · Competing explanations of inflation · Starting check

Economic rent

Income above what is needed to bring something into use. Land is the classic case: its supply is fixed, so its whole return is rent. The idea, developed by classical economists such as David Ricardo, extends to monopolies and scarce natural resources.

Example A block near Sydney's CBD earns far more than an identical block on the city fringe, though neither owner created the location. That difference is economic rent.

Explained in Scarcity, opportunity cost and real resource constraints
Used in Negative Gearing Explained | Greg Jericho on the Project · Michael Hudson Part 4 Economic Rent

Endogenous money

The view that most money is created inside the economy, by banks lending in response to borrowers' demand, rather than being a fixed quantity set by the central bank. Post-Keynesian economists argued this for decades; the Bank of England and the RBA now describe lending the same way.

Example When a bank approves a $500,000 home loan, it creates a new $500,000 deposit. The money grew because a borrower wanted a loan, not because the RBA supplied it first.

Explained in Commercial bank deposits and central bank reserves · Money, currency and credit
Used in How Do Banks Create Money? A Walk-Through of Richard Werner's Papers

Exchange rate

The price of one currency in terms of another. A falling Australian dollar makes imports dearer for Australians and exports cheaper for foreign buyers.

Example If one Australian dollar buys 65 US cents, a phone priced at US$650 costs A$1,000 before shipping and GST.

Explained in Exchange rates and international trade
Used in How a cash rate rise is meant to work · Australia's tax dilemma: the case for real reform | Richard Denniss National Press Club Address · Where Tax is contested · What an exchange rate is, and why Australia's floats · Degrees of monetary sovereignty · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost and 9 more

Exchange settlement balances

Money that banks and some other approved institutions hold in exchange settlement accounts at the RBA, often called reserves. Banks use these balances to settle payments with each other and with the government. Households and ordinary businesses cannot hold them.

Example When you transfer $50 to a friend who banks elsewhere, your deposit falls, theirs rises, and your bank pays their bank by moving $50 of exchange settlement balances at the RBA.

Explained in Commercial bank deposits and central bank reserves · Government-issued money and commercial bank money
Used in Three kinds of money in Australia · Professor L Randall Wray | The History and Nature of Money | January 2024 · Who does what: Australia's actual arrangements · The simplified model and the real one · Worked example: one day in the Government's bank account · Modern Monetary Theory - A Primer and 19 more

Financial Claims Scheme

An Australian Government guarantee that protects deposits in authorised banks, building societies and credit unions, up to $250,000 per account holder per institution, if the institution fails. APRA administers it.

Example Someone with $180,000 in a failed bank covered by the scheme would get it all back. Someone with $400,000 there would be covered for $250,000.

Explained in Commercial bank deposits and central bank reserves
Used in How Do Banks Create Money? A Walk-Through of Richard Werner's Papers · Government-issued money and commercial bank money

Financial deregulation

Removing government controls on banks and financial markets. In Australia in the 1980s it included floating the dollar, lifting controls on interest rates and admitting foreign banks. RBA research links it, with lower inflation, to households' greater capacity to borrow.

Example With deregulation and lower interest rates from the 1990s, households could borrow far more on a given income, which RBA researchers link to house prices rising faster than incomes.

Explained in Interest rates · Commercial bank deposits and central bank reserves
Used in Interest rates and bank credit · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler · Where Housing is contested · Monetarism

Financial instability hypothesis

Hyman Minsky's theory that long calm periods encourage borrowers and lenders to take on more debt and risk, so the financial system grows more fragile until a crisis. It has been widely revisited since 2008, but its claim that instability is built into finance is contested.

Example After years of rising house prices, lenders relax standards and buyers borrow more against expected gains. Minsky would say the calm itself has made the next downturn more damaging.

Explained in Public debt versus private debt · Interest rates
Used in Crash Course on Hyman Minsky, L. Randall Wray

Fiscal multiplier

The change in total output caused by each dollar of extra government spending or tax cuts. A multiplier above one means the spending generates more than its own value in activity. Estimates vary widely with the state of the economy and the type of spending.

Example If $10 billion of school building raises GDP by $15 billion, the multiplier is 1.5. Part of the extra income comes back as tax, so the net budget cost is below $10 billion.

Explained in Fiscal policy and monetary policy · GDP and national income · Aggregate demand and aggregate supply
Used in Ann Pettifor - The Production of Money · Keynesian economics · Fiscal multipliers · Starting check

Fiscal policy

Government decisions about spending and taxation, and the budget balance that results. Treasury describes three jobs for it: allocating resources where markets fall short, redistributing income, and stabilising the economy. In Australia it is set by the government and Parliament.

Example Raising JobSeeker, building a rail line and cutting income tax rates are all fiscal policy decisions.

Explained in Fiscal policy and monetary policy
Used in Modern Monetary Theory - A Primer · Fiscal Policy · Professor Bill Mitchell - The Government Chooses the Unemployment Rate · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" · Fiscal policy and monetary policy and 8 more

Floating exchange rate

An exchange rate set by supply and demand in foreign exchange markets rather than fixed by the government. The Australian dollar has floated since December 1983; the RBA describes it as a shock absorber.

Example When world prices for Australia's commodity exports slump, the dollar usually falls too, cushioning exporters' earnings in Australian dollars.

Explained in Exchange rates and international trade
Used in Bill Mitchell: Demystifying Modern Monetary Theory · Where Banks & debt is contested · What an exchange rate is, and why Australia's floats · Issuing a currency does not make a country self-sufficient · Where The global economy is contested · Public debt versus private debt and 6 more

Frictional unemployment

Short spells of unemployment while people move between jobs or start looking for work. Some is normal even in a strong economy.

Example A nurse who leaves a Newcastle hospital and spends three weeks finding a job in Maitland is frictionally unemployed in between.

Explained in Employment, unemployment and economic capacity
Used in Underemployment and the kinds of unemployment · Professor Bill Mitchell - The Government Chooses the Unemployment Rate · Labour markets and unemployment

Full employment

The highest level of employment an economy can sustain. The RBA defines it as the maximum employment consistent with low and stable inflation. MMT economists define it more ambitiously, as a job for everyone who wants one, which they argue a Job Guarantee could deliver.

Example Australian unemployment averaged under 2 per cent in the 1960s. The government's 2023 Employment White Paper made 'sustained and inclusive full employment' its first objective.

Explained in Employment, unemployment and economic capacity
Used in Stephanie Kelton: The big myth of government deficits | TED · What limits government spending? Demand, capacity, inflation and jobs · Where Banks & debt is contested · Professor Bill Mitchell - Inflation Targetting · The Phillips curve and the NAIRU · Theory, objective, evidence: keep them apart and 22 more

GDP

Gross domestic product: the total value of goods and services produced in a country over a period, usually a year or a quarter. It is the usual yardstick for the size of an economy, and for comparing deficits, debt and tax across years and countries.

Example On the May 2026 Budget figures Australia's GDP is about $3.0 trillion in 2025–26, so a $30 billion deficit is about 1 per cent of GDP.

Explained in GDP and national income
Used in Deficits, debt and interest · Stephanie Kelton: The big myth of government deficits | TED · Fiscal Policy · Where Government spending is contested · Sellers Inflation [Isabella Weber] · MMT: What Is A Job Guarantee (or "Labor Standard")? and 18 more

Government bond

A tradeable IOU issued by a government that pays interest and repays its face value on a set date. The AOFM issues Australian Government securities, such as Treasury Bonds and shorter-term Treasury Notes, by competitive tender.

Example A super fund buys $10 million of new Treasury Bonds at an AOFM tender. Its deposit falls, the government's account at the RBA rises, and the fund now holds bonds that pay interest.

Explained in Government bonds and bond markets · Government deficits, surpluses and debt
Used in Who does what: Australia's actual arrangements · Deficits, debt and interest · Stephanie Kelton: The big myth of government deficits | TED · Modern Monetary Theory - A Primer · Fiscal Policy · Where Government spending is contested and 16 more

Hedge, speculative and Ponzi finance

Hyman Minsky's three kinds of borrower. Hedge borrowers' income covers interest and repayments. Speculative borrowers' income covers only the interest, so debts must be rolled over. Ponzi borrowers must borrow more or sell assets just to pay the interest.

Example A household whose wages cover its mortgage is a hedge borrower. If rates jump and it can pay only the interest, it becomes speculative; if it must sell the home to keep up, it is Ponzi.

Explained in Public debt versus private debt
Used in Crash Course on Hyman Minsky, L. Randall Wray

Household budget analogy

Comparing a national government's budget with a family's, implying it must balance its books or go broke. Economists of many schools say this misleads for a currency issuer, which cannot run out of its own currency, though such a government still faces inflation and other limits.

Example 'A family that keeps spending more than it earns goes broke, so the government must balance its budget' is the analogy at work. A family cannot create the dollars it owes; the federal government issues them.

Explained in Government deficits, surpluses and debt · Fiscal policy and monetary policy
Used in The government has to balance its budget like a household. · Starting check · Explain deficits, debt and who holds them

Hyperinflation

Extremely rapid inflation, often defined as prices rising more than 50 per cent a month. It is rare and has occurred in extreme circumstances. Nearly every case involved a central bank financing large government deficits; MMT and some post-Keynesian economists put more weight on the collapse of production, and on debts owed in foreign currency or gold, that made those deficits hard to avoid.

Example Germany in 1923 and Zimbabwe in the late 2000s are the best-known cases. Both combined huge money creation with collapsing production, which is why the two sides read them differently.

Explained in Inflation and purchasing power
Used in Bill Mitchell: Demystifying Modern Monetary Theory

Hysteresis

The idea that a downturn can leave lasting damage: long spells of unemployment erode skills, health and connections to work, which can raise the NAIRU itself and reduce the economy's future productive capacity.

Example If a recession leaves thousands of people out of work for two years, some may struggle to find jobs even after the economy recovers, keeping unemployment higher than before.

Explained in Employment, unemployment and economic capacity
Used in The Phillips curve and the NAIRU · Pavlina Tcherneva — The Case for a Job Guarantee · Economic growth and productivity

IMF

The International Monetary Fund, which lends to member countries facing balance of payments crises, usually when they are running short of foreign currency, and attaches policy conditions to its loans. Critics such as Fadhel Kaboub argue its conditions keep poorer countries dependent; the IMF says they restore stability.

Example In 2023 the IMF approved about US$3 billion for Sri Lanka, with conditions including revenue-based fiscal consolidation, debt restructuring and governance reform.

Explained in Exchange rates and international trade
Used in Sellers Inflation [Isabella Weber] · Isabella Weber: The Economics and Politics of Seller's Inflation · Whose interest does the IMF really serve? Fadhel Kaboub explains · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" · Fiscal multipliers

Inflation

A sustained rise in the general level of prices across the economy, not just the price of one thing. In Australia it is usually measured by the yearly change in the Consumer Price Index. Causes include strong demand, supply shocks, expectations and price-setting power.

Example Over the year to December 2022, prices measured by the CPI rose 7.8 per cent, the fastest rate since 1990.

Explained in Inflation and purchasing power

Inflation expectations

What households, businesses and investors expect inflation to be in future. Because expectations shape wage claims and price setting, they can help make inflation happen. Expectations are 'anchored' when people assume inflation will return to target whatever happens this year.

Example If a Hamilton café owner expects her costs to rise 6 per cent next year, she lifts prices now. The RBA watches surveys and bond prices to check expectations stay consistent with its target.

Explained in Inflation and purchasing power
Used in Expectations: why beliefs about inflation matter · Modern Monetary Theory · Put it together · Higher wages inevitably cause inflation.

Inflation target

The RBA's goal for consumer price inflation: between 2 and 3 per cent, in place since the early 1990s. Since the December 2023 Statement on the Conduct of Monetary Policy, the RBA has aimed explicitly to return inflation to the 2.5 per cent midpoint over a timeframe that depends on circumstances.

Example With inflation at 6 per cent, the RBA raises the cash rate. A brief petrol spike that pushes one quarter above 3 per cent need not trigger a response.

Explained in Inflation and purchasing power · Interest rates
Used in Ann Pettifor - The Production of Money · Australia's Inflation Target · Isabella Weber: The Economics and Politics of Seller's Inflation · Professor Bill Mitchell - Inflation Targetting · Monetarism · Higher wages inevitably cause inflation.

Interest rate

The price of borrowing money, or the return on lending it, usually expressed as a percentage a year. Many Australian rates, from mortgages to savings accounts, move with the RBA's cash rate.

Example At 6 per cent, a $600,000 interest-only loan costs $36,000 a year in interest. At 3 per cent, the same $36,000 would cover a $1.2 million loan.

Explained in Interest rates

IOU

Short for 'I owe you': a recorded promise to pay. The Bank of England describes modern money as IOUs: banknotes are the central bank's liability, and a deposit is your own bank's liability to you.

Example A $50 note is an asset to you and a liability of the Reserve Bank of Australia. Your $1,000 in savings is your bank's IOU to you.

Explained in Money, currency and credit · Assets, liabilities and balance sheets
Used in Money as an IOU: reading a balance sheet · Money in the modern economy: an introduction - Quarterly Bulletin · Professor L Randall Wray | The History and Nature of Money | January 2024 · Assets, liabilities and what a deposit really is · How Do Banks Create Money? A Walk-Through of Richard Werner's Papers · Money, currency and credit and 2 more

Job Guarantee

A proposal, associated with MMT economists such as Bill Mitchell and Pavlina Tcherneva, for the government to offer a job at a fixed wage to anyone who wants one. Supporters argue it would anchor wages as a buffer stock; critics question its inflation effects, cost, administration and displacement of other jobs.

Example At $25 an hour for 38 hours a week, one Job Guarantee worker's wages would cost $49,400 a year, partly offset by lower JobSeeker payments and extra tax.

Explained in Employment, unemployment and economic capacity · Fiscal policy and monetary policy
Used in What limits government spending? Demand, capacity, inflation and jobs · Modern Monetary Theory - A Primer · Bill Mitchell: Demystifying Modern Monetary Theory · Professor Bill Mitchell - Inflation Targetting · Where Inflation is contested · Professor Bill Mitchell - The Government Chooses the Unemployment Rate and 14 more

JobSeeker

Australia's main income support payment for unemployed people aged 22 to Age Pension age. Recipients generally must meet mutual obligation requirements, such as looking for work or taking part in activities like Work for the Dole.

Example Some critics of a Job Guarantee, such as David Sligar and Hugh Sturgess, propose raising JobSeeker and hiring public servants on normal terms instead.

Explained in Employment, unemployment and economic capacity
Used in MMT: What Is A Job Guarantee (or "Labor Standard")? · Pavlina Tcherneva — The Case for a Job Guarantee · Fiscal policy and monetary policy · Starting check

Land value tax

A tax on the value of land, not the buildings on it. Land cannot be moved or produced, so the tax does not reduce the amount of land, and economists regard it as highly efficient. Australian states levy land tax, usually excluding the family home. Henry George proposed a 'single tax' on land in 1879.

Example Treasury modelling in 2015 found a hypothetical broad-based land tax would be Australia's most efficient major tax, while stamp duty on property transfers was among the least efficient.

Explained in Scarcity, opportunity cost and real resource constraints
Used in Economic rent, and why land is different · Michael Hudson Part 4 Economic Rent · Cameron Murray - The Great Housing Hijack | Australia's Biggest Book Club

Legal tender

Money that the law says can be offered to settle a debt. Australian banknotes are legal tender under the Reserve Bank Act, and coins are legal tender up to set limits, though businesses can usually agree other payment terms in advance.

Example A café with a clear 'card only' sign has set its payment terms before you order, so it can usually decline your banknotes even though they are legal tender.

Explained in Money, currency and credit · Government-issued money and commercial bank money
Used in Why do Australians accept the dollar? · How To Create A Currency From Scratch (Long Version) · Money, currency and credit

Liability

Something a person or organisation owes to someone else, such as a loan or a promise to pay. On a balance sheet, liabilities are set against assets; the difference is net worth, which for a bank is called its capital.

Example Your mortgage is your liability and the bank's asset. Your deposit is the reverse: your asset and the bank's liability.

Explained in Assets, liabilities and balance sheets
Used in Three kinds of money in Australia · Money as an IOU: reading a balance sheet · Money in the modern economy: an introduction - Quarterly Bulletin · Professor L Randall Wray | The History and Nature of Money | January 2024 · Where What is money? is contested · The simplified model and the real one and 26 more

Looking through

A central bank choosing not to respond to a temporary price shock, such as a fuel spike or a tax change, because interest rates cannot fix it and it should fade on its own. It depends on inflation expectations staying anchored.

Example When a refinery outage overseas briefly pushes up petrol prices, the RBA can look through it, acting only if the rise spreads into other prices and wages.

Explained in Inflation and purchasing power · Interest rates
Used in Expectations: why beliefs about inflation matter · Australia's Inflation Target · Isabella Weber: The Economics and Politics of Seller's Inflation · Higher interest rates are the only effective way to control inflation. · Starting check

Mainstream economics

On this site, the views most widely held by academic economists and by institutions such as the RBA, Treasury and the IMF, largely built on neoclassical and New Keynesian models. Mainstream economists disagree among themselves on many questions; the label does not mean they make one argument.

Example Gregory Mankiw, Olivier Blanchard and RBA researchers are all mainstream economists, yet Blanchard has argued that public debt may cost less than often assumed while interest rates stay low.

Used in Where What is money? is contested · Stephanie Kelton: The big myth of government deficits | TED · What limits government spending? Demand, capacity, inflation and jobs · Modern Monetary Theory - A Primer · Bill Mitchell: Demystifying Modern Monetary Theory · Where Government spending is contested and 48 more

Marginal tax rate

The rate of tax on your next dollar of income. In 2026–27 Australian resident rates are 0, 15, 30, 37 and 45 per cent across income brackets, plus the Medicare levy. Your average rate, total tax divided by income, is lower than your top marginal rate.

Example On $100,000, each extra dollar is taxed at 30 cents, so a $1,000 deduction saves $300. Total income tax in 2026–27 is $20,520, an average rate of about 20.5 per cent.

Used in How much Australia taxes, and how · Negative Gearing Explained | Greg Jericho on the Project · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler

Markup

The amount a firm adds to its costs to set its price, often expressed as a percentage of costs, and loosely called a margin. If a firm keeps the same percentage markup when its costs rise, its profit per item rises in dollars.

Example A wholesaler adds 20 per cent to costs of $50 and sells at $60. When costs rise to $60, the same 20 per cent gives a $72 price and $12 profit, up $2.

Explained in Inflation and purchasing power
Used in Sellers Inflation [Isabella Weber] · Competing explanations of inflation

Medium of exchange

Anything widely accepted in payment for goods and services, so people need not swap goods directly. Textbooks list it as one of money's main functions, alongside unit of account and store of value.

Example A plumber accepts a bank transfer for fixing your tap because she can spend that money at the supermarket. She does not need you to have something she wants.

Explained in Money, currency and credit
Used in The MYTH of Barter, and why it harms us

MMT

Modern Monetary Theory: a school associated with Bill Mitchell, Randall Wray, Stephanie Kelton, Warren Mosler and Pavlina Tcherneva. It argues a government issuing its own floating currency faces no financial limit on spending in it, only inflation and real-resource limits, and proposes policies such as a Job Guarantee.

Example Asked how a $15 billion rail line will be paid for, an MMT economist would ask instead whether the workers, steel and machinery are available without pushing up prices.

Explained in Fiscal policy and monetary policy · Government-issued money and commercial bank money · Scarcity, opportunity cost and real resource constraints
Used in Three theories of where money came from · Why do Australians accept the dollar? · How To Create A Currency From Scratch (Long Version) · Professor L Randall Wray | The History and Nature of Money | January 2024 · Where What is money? is contested · The simplified model and the real one and 62 more

Monetarism

A school associated with Milton Friedman, influential in the 1970s and 1980s, holding that inflation is mainly caused by the money supply growing faster than output, so central banks should control money growth. Few central banks now target money directly.

Example Bill Mitchell argues that the euro's Maastricht rules, such as the 3 per cent limit on member governments' deficits, reflected the monetarist thinking of the time.

Explained in Inflation and purchasing power · Money, currency and credit
Used in Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale" · Why economists disagree · Keynesian economics · Monetarism · New Keynesian macroeconomics · Competing explanations of inflation

Monetary financing

A central bank funding a government's deficit directly, for example by buying bonds straight from the government or lending to it. The RBA does not normally do this. Treasury and the RBA see the separation as protecting inflation control; MMT economists see it as a self-imposed rule.

Example In 2020 RBA Governor Philip Lowe said monetary financing was not an option. The RBA's 2020–22 bond purchases were made from existing holders in the secondary market.

Explained in Fiscal policy and monetary policy · Government bonds and bond markets
Used in Modern Monetary Theory - A Primer · Fiscal Policy · Bill Mitchell: Demystifying Modern Monetary Theory · Government borrowing and bond markets · Public debt will burden future generations. · Explain what mainstream economists argue

Monetary policy

Central bank decisions about interest rates and related tools, aimed at keeping inflation low and stable and employment high. In Australia the RBA's Monetary Policy Board sets a target for the cash rate, which flows through to other interest rates.

Example Between May 2022 and November 2023 the RBA raised the cash rate target from 0.10 to 4.35 per cent to bring inflation down.

Explained in Fiscal policy and monetary policy · Interest rates
Used in Money creation in the modern economy - Quarterly Bulletin · Ann Pettifor - The Production of Money · How a cash rate rise is meant to work · Australia's Inflation Target · Professor Bill Mitchell - Inflation Targetting · How the RBA thinks about unemployment and inflation and 9 more

Monetary sovereignty

How much control a country has over its own money: whether it issues its own currency, lets the exchange rate float, and borrows in its own currency. Countries sit on a spectrum, from floating currency issuers to members of a currency union and countries with large foreign-currency debts.

Example Australia has a high degree of monetary sovereignty. Greece, which uses the euro, and a country that owes heavily in US dollars both have much less.

Explained in Exchange rates and international trade · Government-issued money and commercial bank money
Used in Bill Mitchell: Demystifying Modern Monetary Theory · Whose interest does the IMF really serve? Fadhel Kaboub explains · Joan Muysken Lecture: "The Eurozone, Groupthink and denial on a grand scale"

Money

Anything widely accepted in payment and used to measure value and settle debts. In Australia today it is mostly bank deposits, plus notes and coins and the settlement balances banks hold at the RBA. Economists disagree about its origins and about what gives it value.

Example Your bank balance, the $50 note in your wallet and your bank's account at the RBA all count as money, but each is a promise from a different institution.

Explained in Money, currency and credit · Government-issued money and commercial bank money

Money multiplier

A textbook model in which banks lend out a fixed multiple of the reserves they hold, so the central bank controls the amount of money by controlling reserves. The Bank of England calls this a misleading description of how money is created today.

Example Australia has no fixed reserve requirement. Lending is limited by profitability, creditworthy borrowers, capital, liquidity and the cash rate, not by a multiple of banks' reserves.

Explained in Commercial bank deposits and central bank reserves
Used in Money creation in the modern economy - Quarterly Bulletin · How Do Banks Create Money? A Walk-Through of Richard Werner's Papers · Starting check

NAIRU

The non-accelerating inflation rate of unemployment: an estimate, used by the RBA and many economists, of the lowest unemployment rate that can be sustained without wages growth and inflation rising. It is closely related to the 'natural rate'. It cannot be observed; MMT economists argue it is too unreliable to steer by.

Example A 2017 RBA estimate put the NAIRU at about 5 per cent, with a band of roughly 4 to 6 per cent. RBA estimates had been just over 7 per cent in 1995. In February 2024 the RBA's models put the unemployment rate consistent with full employment at about 4 to 5½ per cent.

Explained in Employment, unemployment and economic capacity · Inflation and purchasing power
Used in Professor Bill Mitchell - Inflation Targetting · Where Inflation is contested · The Phillips curve and the NAIRU · Theory, objective, evidence: keep them apart · How the RBA thinks about unemployment and inflation · MMT: What Is A Job Guarantee (or "Labor Standard")? and 7 more

Negative gearing

Deducting a loss on an investment, usually a rental property whose interest and costs exceed its rent, from other income such as wages, which lowers income tax. From 1 July 2027 losses on established homes bought after 12 May 2026 can no longer be deducted from wages; new builds and homes already held keep it.

Example Priya earns $100,000. Her unit brings in $26,000 rent but costs $34,000 to hold. Deducting the $8,000 loss at her 30 per cent marginal rate cuts her tax by $2,400.

Neoclassical economics

The dominant approach in modern economics, which models people and firms as making choices to get the most from scarce resources, and markets as tending towards a balance of supply and demand. Critics such as Ha-Joon Chang argue it narrows debate; its users see it as a flexible toolkit.

Example A textbook supply-and-demand diagram showing rents settling where the supply of rental homes meets tenants' demand is a neoclassical model.

Explained in Scarcity, opportunity cost and real resource constraints
Used in RSA ANIMATE: Economics is for Everyone! · Classical and neoclassical economics

Net financial assets

Financial assets minus financial liabilities. A government deficit adds to the non-government sector's net financial assets, because it adds deposits or bonds with no matching private debt. Bank lending does not, because each new deposit comes with an equal loan.

Example A $600,000 mortgage adds $600,000 of deposits and $600,000 of debt, so no net change. A $1.5 million government deficit leaves the private sector $1.5 million better off in financial assets.

Explained in Sectoral balances · Assets, liabilities and balance sheets
Used in How a loan creates a deposit, and repayment destroys it · Where Banks & debt is contested · The Money System in Five Minutes · Sectoral balances · Explain how government spending, taxes and bonds work · Explain how banks create money, and what limits them

Net foreign liabilities

What foreigners own in a country, such as shares, bonds, property and deposits, minus what its residents own abroad. It reflects past current account deficits, adjusted for changes in asset prices and exchange rates.

Example The ABS put Australia's net foreign liabilities at $638.9 billion at 30 June 2026. Because Australia has a net foreign currency asset position, a falling dollar shrinks them.

Explained in Exchange rates and international trade
Used in Trade, the current account and capital flows · Whose currency are the debts in? · Where The global economy is contested · Exchange rates and international trade · Exchange-rate and external-sector constraints · Australia needs foreign investment because it is running out of money.

New Keynesian economics

The framework behind most central banks' economic models, including the RBA's. It pictures forward-looking households and firms with prices and wages that adjust slowly, so interest rates can affect output and jobs in the short run. It underpins inflation targeting and the NAIRU.

Example When the RBA reasons that a higher cash rate slows spending, then hiring and wage growth, and so inflation, it is using a broadly New Keynesian picture of the economy.

Explained in Interest rates · Inflation and purchasing power
Used in New Keynesian macroeconomics

Non-government sector

Everyone except the national government: households, businesses and the rest of the world taken together. In the sectoral balances, the government's deficit is exactly the non-government sector's surplus.

Example If the government spends 500 units and taxes 200 back, the non-government sector ends up holding 300 more units in financial assets.

Explained in Sectoral balances
Used in How To Create A Currency From Scratch (Long Version) · Stephanie Kelton: The big myth of government deficits | TED · How a loan creates a deposit, and repayment destroys it · Where Banks & debt is contested · The Money System in Five Minutes · Sectoral balances and 6 more

Official Public Account

The Australian Government's main group of bank accounts, held at the Reserve Bank and managed by the Department of Finance. Government payments come out of it, and tax receipts and bond sales go into it. It has only a strictly limited overdraft.

Example When Services Australia pays a $1,000 pension, the money leaves the Official Public Account at the RBA and lands in the pensioner's bank's settlement account.

Explained in Government-issued money and commercial bank money · Fiscal policy and monetary policy
Used in Who does what: Australia's actual arrangements · Worked example: one day in the Government's bank account · Fiscal Policy · The Money System in Five Minutes · Commercial bank deposits and central bank reserves

Original sin

Economists' term, coined by Barry Eichengreen and Ricardo Hausmann, for many countries' inability to borrow abroad in their own currency. Owing in foreign currency means a falling exchange rate raises the cost of every repayment, which can turn a currency crisis into a debt crisis.

Example A government owing US dollars whose currency halves in value needs twice as much local currency for each repayment. Most of Australia's foreign liabilities are in Australian dollars.

Explained in Exchange rates and international trade
Used in Whose currency are the debts in? · Exchange-rate and external-sector constraints

Output gap

The difference between what an economy actually produces and its estimated productive capacity. A negative gap means spare capacity, such as unemployed workers and idle equipment; a positive gap means demand is straining capacity. It cannot be observed, only estimated.

Example With unemployment high and factories running below capacity, the output gap is negative. Economists use such estimates to judge how much more spending the economy can absorb before inflation rises.

Explained in Employment, unemployment and economic capacity · Aggregate demand and aggregate supply
Used in Stephanie Kelton: The big myth of government deficits | TED · What limits government spending? Demand, capacity, inflation and jobs · Bill Mitchell: Demystifying Modern Monetary Theory · The Phillips curve and the NAIRU · How the RBA thinks about unemployment and inflation · Universal Healthcare Probably Requires LOWER Taxes, Not Higher and 9 more

Phillips curve

A graph of the relationship between unemployment and inflation (originally wage growth), named after A.W. Phillips, who studied UK data in 1958. Inflation tends to be higher when unemployment is low. Most economists see it as a short-run trade-off whose strength changes over time.

Example When unemployment is very low, businesses compete for scarce workers and wages rise faster; when it is high, wage growth slows. Plotting the two over many years traces a Phillips curve.

Explained in Inflation and purchasing power · Employment, unemployment and economic capacity
Used in The Phillips curve and the NAIRU · New Keynesian macroeconomics · The Phillips curve · NAIRU · Unemployment has to increase to control inflation.

Post-Keynesian economics

A school of economics building on John Maynard Keynes, Michał Kalecki and Hyman Minsky. It stresses uncertainty, the role of total spending, bank-created money and financial instability. MMT grew out of this tradition, and Steve Keen works within it.

Example Minsky's account of borrowers drifting from hedge to speculative to Ponzi finance in good times is a classic post-Keynesian idea.

Explained in Aggregate demand and aggregate supply · Public debt versus private debt
Used in How Do Banks Create Money? A Walk-Through of Richard Werner's Papers · Theory, objective, evidence: keep them apart · RSA ANIMATE: Economics is for Everyone! · Public debt versus private debt · The competing schools of thought in economics · Why economists disagree and 13 more

Price controls

Legal limits on what can be charged for particular goods or services. Isabella Weber argues temporary, targeted limits can buy time in an emergency while supply recovers; many economists warn that caps can cause shortages and deter investment.

Example A government that bars petrol stations from raising prices for three months after a major refinery fire is using a temporary price control.

Explained in Inflation and purchasing power
Used in Isabella Weber: The Economics and Politics of Seller's Inflation · Higher interest rates are the only effective way to control inflation.

Private debt

What households and businesses owe, mostly to banks. In Australia most household debt is mortgages. Economists watch how fast it grows relative to incomes, because heavily indebted borrowers cut spending sharply if interest rates rise or incomes fall.

Example Australian household debt rose from about 70 per cent of household disposable income in the early 1990s to about 190 per cent by 2019, mostly home loans.

Explained in Public debt versus private debt
Used in Where Government spending is contested · How a loan creates a deposit, and repayment destroys it · Private debt: when borrowing becomes a risk · Worked example: a bank's balance sheet, step by step · Crash Course on Hyman Minsky, L. Randall Wray · Ann Pettifor - The Production of Money and 8 more

Productive capacity

How much an economy can produce with its available workers, equipment, land and materials, also called potential output or aggregate supply. Output can exceed it for a while, but usually with rising inflation. It grows with investment, skills and population.

Example If every builder in the Hunter is booked solid, extra spending on housing there mostly bids up prices until more builders are trained or arrive.

Explained in Aggregate demand and aggregate supply · Employment, unemployment and economic capacity · Scarcity, opportunity cost and real resource constraints
Used in Stephanie Kelton: The big myth of government deficits | TED · What limits government spending? Demand, capacity, inflation and jobs · Bill Mitchell: Demystifying Modern Monetary Theory · Demand, supply and the price level · Professor Bill Mitchell - Inflation Targetting · Aggregate demand and aggregate supply and 4 more

Profit share

The share of national income that goes to business profits, as measured in the national accounts. The labour share is the part paid to workers as wages and related costs. When one rises, the other usually falls.

Example The RBA found Australia's aggregate profit share rose strongly from 2021, mainly because high global commodity prices lifted mining profits.

Explained in GDP and national income · Inflation and purchasing power
Used in Sellers Inflation [Isabella Weber] · Isabella Weber: The Economics and Politics of Seller's Inflation · Competing explanations of inflation

Public debt

The stock of debt a government owes, mostly the bonds it has issued. Gross debt counts the face value of all bonds on issue. Australian federal debt is in Australian dollars and is held by investors in Australia and overseas, including super funds, banks and the RBA.

Example The May 2026 Budget expects gross debt of $1,051 billion at 30 June 2027, about 34 per cent of GDP.

Explained in Government deficits, surpluses and debt · Government bonds and bond markets · Public debt versus private debt
Used in Who does what: Australia's actual arrangements · Deficits, debt and interest · Worked example: one day in the Government's bank account · Fiscal Policy · Where Government spending is contested · Crash Course on Hyman Minsky, L. Randall Wray and 13 more

Quantitative easing

A central bank buying large amounts of government bonds or other assets from investors, to push down longer-term interest rates when its policy rate is already near zero. It adds to banks' settlement balances, but banks do not lend those reserves to households.

Example During the pandemic, in 2020–22, the RBA bought government bonds from existing holders in the secondary market, not directly from the government.

Explained in Interest rates · Government bonds and bond markets · Commercial bank deposits and central bank reserves
Used in Who does what: Australia's actual arrangements · Fiscal Policy · Money creation in the modern economy - Quarterly Bulletin · The Money System in Five Minutes · Fiscal policy and monetary policy · Government borrowing and bond markets

Real resources

The actual inputs that money buys: workers, skills, materials, land, energy and equipment. Economists of all schools agree that spending beyond the real resources available tends to raise prices rather than output.

Example A plan for 20,000 social homes is limited less by dollars than by whether enough bricklayers, electricians and plumbers can be found without pulling them off other work.

Explained in Scarcity, opportunity cost and real resource constraints
Used in Stephanie Kelton: The big myth of government deficits | TED · What limits government spending? Demand, capacity, inflation and jobs · Fiscal Policy · Two claims to keep apart · Universal Healthcare Probably Requires LOWER Taxes, Not Higher · Degrees of monetary sovereignty and 17 more

Real terms

Measured after adjusting for inflation, to show what money can actually buy. Nominal figures are in current dollars, unadjusted. Real wages are wages adjusted for prices: they fall when prices rise faster than pay.

Example If your pay rises 3 per cent while prices rise 6 per cent, your nominal wage is up but your real wage has fallen by about 3 per cent.

Explained in Inflation and purchasing power · GDP and national income
Used in Isabella Weber: The Economics and Politics of Seller's Inflation · Where Inflation is contested · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost · A house is both a home and an asset · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler · GDP and national income and 7 more

Rent controls

Rules limiting rents or how fast they can rise. 'Modern' controls, which Cameron Murray supports, cap yearly increases rather than freezing rents. The Grattan Institute opposes freezes and hard caps but supports letting tenants challenge rises above a benchmark.

Example Under a cap of inflation plus a few per cent, a landlord seeking to lift the rent from $500 to $625 a week would phase the rise in over about three years.

Used in Speculation, winners and losers, and three kinds of fix · Cameron Murray - The Great Housing Hijack | Australia's Biggest Book Club

Sectoral balances

An accounting framework that splits the economy into the government, the domestic private sector (households and businesses) and the rest of the world. Their financial balances always sum to zero, so a government deficit equals the other two sectors' combined surplus. It does not show cause.

Example A $30 billion government deficit alongside a $10 billion current account deficit means households and businesses together run a $20 billion surplus.

Explained in Sectoral balances
Used in How To Create A Currency From Scratch (Long Version) · Sectoral balances in plain words · Worked example: one day in the Government's bank account · Stephanie Kelton: The big myth of government deficits | TED · The Money System in Five Minutes · What an economy is and 6 more

Sellers' inflation

Isabella Weber and Evan Wasner's account of the 2021–23 inflation: big, widely reported cost shocks let firms with pricing power raise prices together and protect or widen margins, before workers push for wages to catch up. 'Greedflation' is a cruder popular label. The account is contested.

Example The RBA found Australia's profit share rose mainly through mining, with little broad rise in non-mining margins to late 2022. Weber's evidence is mostly from the US and Europe.

Explained in Inflation and purchasing power
Used in Sellers Inflation [Isabella Weber] · Isabella Weber: The Economics and Politics of Seller's Inflation · Competing explanations of inflation · Explain what causes inflation

Social housing

Rental housing provided at below-market rents, usually to people on low incomes, by governments (public housing) or by not-for-profit organisations (community housing).

Example A family on a low income renting from a state housing authority, with rent set as a share of household income, lives in public housing.

Used in RSA ANIMATE: Economics is for Everyone! · Speculation, winners and losers, and three kinds of fix · Webinar Series: The Great Divide: Australia's housing mess and how to fix it. With Alan Kohler · Cameron Murray - The Great Housing Hijack | Australia's Biggest Book Club · What Economists Aren't Telling Us About the Property Market | Steve Keen, Economist · Where Housing is contested and 1 more

Stamp duty

A state tax paid when property changes hands, usually by the buyer, also called transfer duty. Treasury modelling ranks it among Australia's least efficient taxes, because it discourages people from moving to homes and jobs that suit them better.

Example A Newcastle family pays $40,000 in stamp duty on a home. An older couple may stay in a large house rather than pay duty again to downsize.

Used in Economic rent, and why land is different · Michael Hudson Part 4 Economic Rent · Australia's tax dilemma: the case for real reform | Richard Denniss National Press Club Address

Structural unemployment

Unemployment caused by a mismatch between the jobs on offer and the skills or locations of the people looking for work. It can last more than a year even in good times. The RBA says skills, training and job-matching policies, not interest rates, address it.

Example A retrenched Hunter Valley mine worker and a nursing vacancy in Sydney do not match, even though both a worker and a job exist.

Superannuation guarantee

The compulsory contribution employers must pay into their employees' superannuation funds, 12 per cent of ordinary earnings from 1 July 2025. Because it goes into private accounts, it is not counted as tax in OECD comparisons.

Example An employee earning $80,000 a year has about $9,600 a year paid into her super fund by her employer, on top of her wage.

Used in How much Australia taxes, and how · Australia's tax dilemma: the case for real reform | Richard Denniss National Press Club Address

Tax-to-GDP ratio

Total tax revenue as a share of GDP, the usual way to compare tax levels across countries. Comparisons depend on what counts: many countries fund pensions through social security contributions, which count as tax, while Australia's compulsory superannuation does not.

Example OECD figures put Australia's tax at 29.4 per cent of GDP in 2022, below the OECD average of 34.0 per cent.

Explained in GDP and national income
Used in How much Australia taxes, and how · Australia's tax dilemma: the case for real reform | Richard Denniss National Press Club Address

Terms of trade

The ratio of a country's export prices to its import prices. When Australia's terms of trade rise, a given amount of exports buys more imports. Warren Mosler uses 'real terms of trade' differently, for the real goods and services a country gives up and receives.

Example When world prices for iron ore and coal surge, Australia's terms of trade rise, and the Australian dollar tends to rise with them.

Explained in Exchange rates and international trade
Used in What an exchange rate is, and why Australia's floats · Real Terms Of Trade: Imports are a Benefit, Exports are a Cost · Exchange rates and international trade · A trade deficit means a country is losing.

Trimmed mean

A measure of underlying inflation, closely watched by the RBA, that drops the items with the largest price rises and falls in each period (15 per cent of the basket at each end) and averages the rest. It shows the broad trend without one-off spikes.

Example If petrol and fruit prices jump after floods, headline CPI inflation rises, but the trimmed mean may barely move because those extreme changes are left out.

Explained in Inflation and purchasing power
Used in Inflation and purchasing power · Unemployment has to increase to control inflation. · Higher interest rates are the only effective way to control inflation.

Underemployment

Being employed but wanting, and being available for, more hours of work. The ABS counts underemployed people as employed, so the underemployment rate adds to the picture of unused labour that the unemployment rate gives.

Example Someone working 10 hours a week who wants 30 is underemployed. In August 2026 the underemployment rate was 6.2 per cent, higher than the unemployment rate.

Explained in Employment, unemployment and economic capacity
Used in What limits government spending? Demand, capacity, inflation and jobs · Professor Bill Mitchell - Inflation Targetting · Underemployment and the kinds of unemployment · Employment, unemployment and economic capacity · Scarcity, opportunity cost and real resource constraints · Aggregate demand and aggregate supply and 2 more

Unemployment rate

The share of the labour force that is unemployed. The labour force is everyone aged 15 and over who is either employed (at least one hour of paid work in the survey week) or unemployed (no paid work, actively looking and available to start).

Example In August 2026 the ABS put the unemployment rate at 4.6 per cent, about 723,000 people. A student with a four-hour Saturday shift counts as employed.

Explained in Employment, unemployment and economic capacity
Used in Professor Bill Mitchell - Inflation Targetting · Who counts as unemployed? · Underemployment and the kinds of unemployment · The Phillips curve and the NAIRU · How the RBA thinks about unemployment and inflation · Property developer says unemployment should rise and 6 more

Unit labour costs

The labour cost of producing one unit of output: wages and related costs divided by output. They rise when wages grow faster than productivity, which can lead firms to raise prices.

Example If pay rises 4 per cent while each worker produces 1 per cent more, unit labour costs rise by about 3 per cent.

Explained in Inflation and purchasing power · Employment, unemployment and economic capacity
Used in Higher wages inevitably cause inflation. · Explain what causes inflation

Unit of account

The measure in which prices, wages, debts and accounts are written. In Australia it is the dollar. Some theories of money argue that a unit of account set by authorities came before coins or notes.

Example A lease for $550 a week, a $35,000 car loan and a tax bill are all written in Australian dollars, the shared unit of account.

Work for the Dole

A long-running Australian program in which some people receiving unemployment payments take part in community activities in return for their payment, as part of their mutual obligations. It is not paid employment.

Example Critics of a Job Guarantee point to Work for the Dole's 'lock-in' effects, where time in the program cuts time spent looking for regular work. Supporters reply that paid, voluntary jobs would differ.

Explained in Employment, unemployment and economic capacity
Used in MMT: What Is A Job Guarantee (or "Labor Standard")? · Pavlina Tcherneva — The Case for a Job Guarantee · Compare policy options

Zoning

Planning rules, set by state governments and councils, that control what can be built where, such as how many homes may go on a block. RBA research finds zoning keeps big-city house prices well above the cost of supply; how much more building reform would bring is debated.

Example RBA researchers estimated that in 2016 zoning pushed Sydney detached house prices 73 per cent above the cost of supplying them, while warning prices would not fall that far without zoning.

Explained in Scarcity, opportunity cost and real resource constraints
Used in The supply argument at its strongest · Cameron Murray - The Great Housing Hijack | Australia's Biggest Book Club · Where Housing is contested · If governments can create money, why can't they build 500,000 houses tomorrow?