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 selfesteem
• 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)