Australian Government Economic Goals

Economic Goals 1.The goal of strong and sustainable economic growth 2.The goal of low inflation 3.The goal of full employment 4.The goal of external stability 5.The goal of equity in personal income distribution

Goal 1: Strong and Sustainable Economic Growth Recall: economic growth occurs when there is an increase in the level of national production of goods and services between one year and the next. During the 1950s and 1960s economic growth was the ultimate goal – the more aggregate demand and production the better.

Goal 1: Strong and Sustainable Economic Growth Now there is a greater awareness of the costs of economic growth such as: Pollution Depletion of non-renewable resources Congestion Inequitable distribution of goods and services There should not be growth at any cost

Strong and Sustainable Economic Growth Definition of Goal: Strong and sustainable economic growth refers to an increase in the real value of final goods and services produced in Australia over time (Real GDP) that does not cause inflationary or external pressure. This increase in production also needs to be sustainable in the long term so it does not deplete non-renewable resources, degrade the environment and reduce the ability of future generations to meet their needs and wants

Strong and Sustainable Economic Growth TARGET – The governments goal for strong and sustainable economic growth is to achieve the highest economic growth rate possible consistent with strong employment growth, but without running into unacceptable inflationary, external or environmental pressures. (approx 3 – 4% growth rate in Real GDP p.a.).

3%

Impact on Living Standards of achieving strong and sustainable economic growth Material living standards Growth in production Greater employment, low levels of unemployment Higher incomes Greater access to purchase goods and services Non-material living standards Higher levels of self- esteem Sense of purpose Better health outcomes Greater connectivity Lower crime rates

Measuring Economic Growth Real GDP: the measure of the total value of final goods and services produced in Australia excluding the inflationary effects of prices increases from the value of production by holding prices constant. (Aka chain volume GDP)

Limitations of GDP Measure Non-market production is excluded – GDP underestimates value of production Imputed production involves error – value of some production needs to be estimated Quality changes may be ignored Deflating GDP involves possible error – need to use consumer price index to set GDP at constant prices. Price index may not reflect changes in price of all goods and services.

Limitations of GDP Measure The distribution of the costs and benefits of economic growth is not exposed – does not provide any information regarding inequality Population growth can lead to higher levels of Real GDP due to more consumers in the economy – to remove the effect of population should use GDP per capita

Limitations of GDP Measure GDP per capita is calculated by dividing total GDP by the population size Provides a $ figure per person and is used to indicate the average living standards of Australians

Limitations of GDP Measure GDP tells us little about living standards – Rising GDP should mean better employment opportunities, higher incomes, greater purchasing power of income, improved provision of government services such as health and education, greater life expectancy – However, rising GDP may be associated reduced leisure time, poor family life, environmental damage, pollution, congestion, stress, over crowding, corruption of society’s moral values, materialism.

Alternative Ways of Measuring Australia’s Living Standards GDP statistics alone can not tell us if living standards have actually improved. Economists and statisticians have some up with three alternative indicators – Measures of Australia’s Progress (MAP) – Genuine Progress Indicator (GPI) – Human Development Index (HDI)