Economic Policies and Management

Economic objectives in relation to:

Economic Growth and Quality of Life
Economic Growth is a key aim of all economies as it represents an increase in the
volume of goods and services produced by an economy in a year. As a result, many
benefits accrue such as higher disposable income (resultantly, a higher Quality of life)
and decreased UE. The general wellbeing of households benefits as the amount of public
goods provided by the government increases.

Full Employment
Full Employment refers to the complete utilization of all resources but despite this, the
most common use of this term is in regards to labour. This is commonly regarded as the
NAIRU (Non Accelerating Inflationary Rate of Unemployment). This is the rate which
remains once cyclical UE is removed as there will always be a level of structural,
frictional, seasonal and Hard-Core UE. Since cyclical UE is altered by the level of AD
within an economy, the NAIRU is related to the level of AS and thus, the primary means
of altering the NAIRU is through the implementation of microeconomic reform. As a result
of attaining full employment, an economy is able to increase its production possibility
frontier whilst also minimizing social problems.

Price Stability
Price Stability refers to the level of inflation being kept at a sustainable level. For the
RBA, this has been set at 2-3% over the course of the economic cycle. During the 1970s
and 1980s, high inflation posed a problem yet since the implementation of inflation
targeting, this issue has subsided. Inflation poses a number of economic consequences
such as decreasing international competitiveness (due to increased COP), decreased real
value of Y and wealth, depreciation of the exchange rate, future cost uncertainty and
poor allocative efficiency.

External Stability
External Stability refers to the balance on overseas financial accounts and the
sustainability of all financial obligations. The three key elements to achieve external
balance are:
Achieving a sustainable balance on the current account. In the case of Australia,
this is a deficit of 3-6%, so long as it is a direct result of the private sectors
spending rather than that of the public sector (government).
Ensuring international confidence in the Australian economy, often through the
value of the AUD on global financial markets.
A sustainable level of foreign debt (one at which the economy can make interest
payments on this debt without the risk of a financial crisis due to the reliance on
constant financial inflows from overseas such as Greece). This is best measured
by the debt-servicing ratio (%X revenue spent on making interest payments on
foreign debt) or with Net Foreign debt as a percentage of GDP.

Jasneil Singh

HSC Economics

2015

Holistically, Australia has a sustainable CAD at 2.5%, thus showing an improvement to

the average of 3-6% of GDP over the past decade. The Pitchford Thesis (Consenting
Adults Theory) explains that this is not a problem for an economy if the CAD is a result of
the actions of the private sector.

Environmental Sustainability
In order to ensure high levels of economic growth in the short term, the natural
resources available are often depleted. As a result, it diminishes the availability of land
for future economic growth and thus acts as a constraint to future, sustainable growth.
Currently, economies aim to ensure that problems such as pollution and depletion of
natural resources have minimal impacts by establishing specific environmental
objectives.
Despite this, they are not always successful, primarily due to the short term loss of
Economic growth. This can be seen with the example of the Carbon Tax in which large
corporations were taxed based on the amount of Carbon Dioxide which was emitted. This
aimed to minimize CO2 emissions but due to the various complaints from businesses due
to their significantly lower revenue, the

Jasneil Singh

HSC Economics

2015