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Summary - Economic Objectives
Summary - Economic Objectives
Lorenz curve above the more the curve is bent the more unequal distribution of
income. The 45 degree curve shows complete equality 1% of population receives 1%
of populations income; 10% receives 10% and so on.
Gini coefficients formula: A / (A+B)
Gini coefficient values are between 0 and 1 (as can be seen from the formula above).
The lower the value of the coeffcieint the lower the inequality. The higher the value of
Ginis coefficient the higher the inequality.
c. Target: to reduce Gini coefficient, currently 0.3ish, encourage societies to help the
needy, to reduce gap between higher and lower income, i.e. higher tax rate for those
with higher income, higher socially security payments for low income earners, to
improve opportunities for younger Australians who grow up in disadvantaged areas or
not well educated.
d. Advantages:
i. More equitable income means a more equitable amount of consumer
income is spent on goods and services, subsequently increasing satisfaction
ii. Less reliance on government funded program such as welfare payments, as
less inequitable incomes means a detraction from the cycle of poverty, as
well as a reduced number of people on government assistance
iii. Generally higher levels of well being, and not a massive gap in standards of
living and satisfaction levels between low and high socio economic groups.
e. Disadvantages:
i. People are less encouraged to improve themselves for higher pay
ii. Investors are less encouraged to take risks. Hence, losing out the potential
gain of undertaking new ventures and creating wealth along with jobs and
income
iii. The social cost of an equitable distribution of income is that the correlation
between work and wage outcomes doesnt exist, therefore the motivation
to work harder for higher wage doesnt exist.
Learning Outcome 2: The economic policy objectives of the Reserve Bank of Australia (RBA)
The objectives of the RBA are stated in the Reserve Bank Act 1959. The objectives are to achieve:
Complementing objectives:
Economic Growth
VS
Full Employment
Compatible
Unemployment
VS
Inflation
Income Distribution
VS
Economic Growth
Learning Outcome 4: The time lags which occur in the use of economic policies i.e. recognition,
decision (implementation) and effect (impact) lags
1. Fiscal policy: Fiscal policy uses changes in the level of government spending (G) and taxation
(T) to directly and indirectly manage the level of aggregate demand to achieve
macroeconomic objectives.
2. Monetary Policy: Monetary policy involves the action by the Reserve Bank, on behalf of the
government to influence the cost and availability of money and credit in the economy.