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Australia's Performance

Economics (Year 11) - Macroeconomic Performance

Carys Brown

Economic Indicators

Economists use indicators to predict and confirm how close Australia is to reaching macroeconomic objectives.

  • Leading indicators are used to predict changes in the economy before they happen. These include the number of building approvals, employment adverts, business confidence or share prices.

  • Coincident indicators occur at the same time as changes in economic activity take place. Examples include output levels, retail sales, interest rates, GDP figures or production of building materials.

  • Lagging indicators confirm that economic changes have taken place as they appear after the trend has occurred. These include unemployment rates, consumer debt levels or amount of savings in the bank.

  • Indicators of External Performance include the current account balance, the trade balance, foreign liabilities, terms of trade (prices of exports compared to prices of imports) and the exchange rate.

Macroeconomic Objectives

Sustainable Growth

  • Indicators: GDP, Real GDP or GDP per capita

  • Objective/Target: 3.25% per year

  • Benefits: Increases capacity of the economy to satisfy the needs and wants of consumers.

  • Problems: Bottlenecks, labour shortages and limited resources as the economy nears capacity

Price Stability

  • Indicators: Consumer price index, Headline Inflation or Underlying Inflation

  • Objective/Target: 2% - 3% on average over a year.

  • Benefits of low inflation: Confidence rises, maintenance of international competitiveness, efficiency not affected.

  • Problems (if inflation too high): Reduces disposable income, higher unemployment if demand-controlled

Full Employment

  • Indicators: Unemployment rate, participation rate, underutilisation rate

  • Objective/Target: 4.5% - no cyclical unemployment

  • Benefits: Raises living standards, self-esteem, economic and social benefits

  • Problems: May increase inflation, wage rates

Equity in Income Distribution

  • Indicators: Gini coefficient

  • Objective/Target: Gini Coefficient about 3.

  • Benefits: Harmonious society, a living wage, distributive justice

  • Problems: Welfare payments may cause a reduced incentive to enter the workforce, moral hazard

Efficient Use of Resources

  • Objective/Target: Avoidance of deadweight loss

  • Benefits: Economic resources are limited, therefore making efficiency extremely beneficial.

  • Problems: Governments can over-regulate markets/cause market failure.

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