Built for HSC Economics
07 · Economic Models

The theory behind 2026

Ten HSC diagrams and ten economic theories, each applied to Australia right now. Choose a model from the menu and switch scenarios, then pick any theory and move the sliders.

Model
Model 01 of 10 · scenarios switch inside the diagram
Macroeconomic model

Aggregate demand & aggregate supply

LRAS
SRAS
AD
E₀
Y₀ = Yf
P₀
Real GDP (Y) →
↑ Price level (P)
What the diagram shows

Aggregate demand (C + I + G + X − M) meets short-run aggregate supply at E₀, on the long-run AS curve: the economy is at full employment (Y₀ = Yf) with stable inflation.

–Price levelP₀
–Real GDPY₀ = full employment
–Unemployment≈ NAIRU
Australia, 2026

Australia was close to this point in early 2025: unemployment of about 4.1% sat near the RBA’s estimate of full employment and inflation was back inside the 2–3% band.

HSC tipLabel both axes, the original and new curves (AD₀ → AD₁), and both equilibria. Say whether the result is an inflationary or deflationary gap, and name the shock.

Economic theories

Pick any theory · every slider updates the chart
Distribution & growth
Trade
Money & policy
Distribution of income & wealth

Piketty: r > g

Thomas Piketty · Capital in the Twenty-First Century (2013)
β = s ÷ g · α = r × β

When the return on capital (r) is higher than the growth rate of the economy (g), wealth that is already owned grows faster than incomes — so wealth concentrates over time, and inheritance matters more.

1×
2×
5×
10×
20×
50×
Year 0
Year 10
Year 20
Year 30
Year 40
Year 50
Wealth (grows at r) · ×11.5
Income (grows at g) · ×2.7
Set the returns and growth
Capital–income ratio in the long run (β = s ÷ g)6.0× income
Capital’s share of income (α = r × β)30%
Wealth ÷ income after 50 years4.3×
r > g by 3.0 points: existing wealth outgrows the economy, so wealth concentrates unless taxed or spread.
In Australia

Australian wealth is twice as unequal as income: a wealth Gini of 0.606 against 0.307 for income. Rising home prices have handed large, lightly taxed gains to owners — a local version of r > g — which is why 2026 debates focus on capital gains tax and negative gearing.

Limits and critiques

Returns tend to fall as capital piles up (diminishing returns); much Australian wealth is spread through homes and compulsory super; and taxes, spending and splitting estates erode large fortunes.

HSC syllabus link

Distribution of income and wealth · causes and consequences of inequality · the role of taxation

Theory in practice: 2026

Select a row to load its model and theory
What happenedModelTheoryWhat it predicts