The Objectives of Economic Policy

Chapter 13- The Objectives of Economic Policy

13.1 Introduction

• Major objectives of economic management

    o Economic growth

    o Internal balance – UE and inflation

    o External balance – CAD and foreign liabilities and exchange rates

13.2 Objectives of Economic Management

• Economic Growth – measured by GDP

    o Increase in Growth, to provide benefits

    o Increase standards of living

    o Improved job prospects for labour force

    o Opportunity for increased investment in infrastructure and public services through higher govt tax revenues

• Full employment

    o Get economy to reach the Natural Rate of Unemployment

    o NAIRU is caused by supply side factors, rather than deficiency in demand – because doesn’t include cyclical UE

    o Benefits of Full Employment:

    o Maximise economy’s capacity to produce, maximising living standards

    o Minimising adverse economic and social problems associated with UE

• Price Stability - Inflation

    o Sustain inflation at a level that will cause minimal distortion to economy – NOT eliminate in total

    o High inflation may:

    o Reduce real value of income and wealth

    o Reduce international competitiveness

    o Depreciate interest rates

    o Create uncertainty about future costs and distort economic decision making

    o Distort patterns of resource allocation

• External Stability - CAD

    o Achieving external stability involves a country meeting its long term financial obligations to the rest of the world

    o Sustainable position on CA – i.e. sustainable CAD

    o International confidence in Aust economy – reflected in $A

    o Acceptable level of foreign debt

• Distribution of Income and Wealth

    o Putting eco growth before inequality

    o Recent policies have aimed to reduce – higher tax rates for high income earners

• Environment Management

    o Ecologically sustainable development...