Australia's Economic Performance

1. Performance of the Australian Economy
November 2017
WACE Economics – Unit 4
Slideshow 12.2
(c) Andrew Tibbitt 2017 1

2. The domestic or internal performance of the economy can be
judged against a number of broad goals or objectives.
ECONOMIC GROWTH (steady, sustained growth = as
much as possible, for as long as possible without
causing problems elsewhere)
LOW UNEMPLOYMENT RATE (5% or below)
LOW INFLATION / PRICE STABILITY (2% to 3%)
EQUITABLE INCOME DISTRIBUTION
ENVIRONMENTAL SUSTAINABILITY
EFFICIENT ALLOCATION OF RESOURCES
Only specific
target
Performance objectives for the Australian
economy
(c) Andrew Tibbitt 2017 2

3. Given the global nature of the economy, Australia does not
attempt to achieve specific international or external
economic objectives.
But the macro-managers will monitor changes in:
BALANCE OF PAYMENTS FLOWS
EXCHANGE RATE
FOREIGN LIABILITIES
TERMS OF TRADE
because changes in external areas will have an impact on
the internal performance of the economy.
Some external performance indicators
(c) Andrew Tibbitt 2017 3

4. OBJECTIVE #1 - Steady sustained economic growth
GOOD LEVEL
GROWTH TOO
FAST, ECONOMY
OVER-HEATING
GROWTH
TOO LOW
INFLATION
ENVIRONMENTAL DAMAGE
LABOUR SHORTAGES
UNEMPLOYMENT
SLOW GROWTH IN
LIVING STANDARDS
NO RECESSION SINCE 1991
(c) Andrew Tibbitt 2017 4

5. (c) Andrew Tibbitt 2017 5
OBJECTIVE #1
Economic growth in some other developed economies

6. NATURAL
RATE
TOO HIGH
TOO LOW?
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OBJECTIVE #2 – Low unemployment

7. Percentage of working age
population in the labour force
Percentage of working age
population who are employed
(c) Andrew Tibbitt 2017 7
OBJECTIVE #2 – Low unemployment
Ideally both levels
would be higher

8. RBA TARGET
ZONE
TOO HIGH
TOO LOW
DANGER OF
DEFLATION
(c) Andrew Tibbitt 2017 8
OBJECTIVE #3 – Low inflation, price stability

9. RBA TARGET RATE
TOO HIGH
TOO LOW
(c) Andrew Tibbitt 2017 9
OBJECTIVE #3 – Low inflation, price stability

10. TRADE
BALANCE
EXPORTS minus
IMPORTS
OUTFLOW OF
INCOMES DUE
TO NET
FOREIGN DEBT
AND FOREIGN
OWNERSHIP
BLUE = ORANGE + GREEN
(c) Andrew Tibbitt 2017 10
EXTERNAL INDICATOR #1 – BOP CURRENT ACCOUNT

11. IS THERE A
GOOD AND A
BAD LEVEL FOR
THE DOLLAR?
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EXTERNAL INDICATOR #2 – EXCHANGE RATE
OVER-VALUED?
UNDER-VALUED?
EQUILIBRIUM
LEVEL?

12. (c) Andrew Tibbitt 2017 12
EXTERNAL INDICATOR #3 – FOREIGN LIABILITIES
ALL THESE
LEVELS ARE
MANAGEABLE

13. (c) Andrew Tibbitt 2017 13
EXTERNAL INDICATOR #4 – TERMS OF TRADE
IMPORTANT FOR IMPACT ON REAL DISPOSABLE INCOME
AND STANDARD OF LIVING – HIGHER THE BETTER?

14. Fiscal Policy
Government spending
Taxation
Borrowing
Monetary Policy
Cash Rate changes
Future guidance
Bank liquidity
Interventionist
(e.g. infrastructure,
health, education)
Market-orientated
(e.g. wage flexibility,
competition, trade)
Demand-side policies
(c) Andrew Tibbitt 2017 14
Supply-side policies
Policy options for improving performance
Assuming the macro-managers don’t think the economy will
self-adjust (or can’t wait for the economy to self-adjust) they
have demand-side and supply-side policy options available to
bring about improved economic performance.

15. (c) Andrew Tibbitt 2017 15
Performance scorecard
Objective / indicator Current
level
Ideal level Performance
assessment
Economic growth
Growth in standard of living
Full employment
Labour force participation
Price stability
Underlying inflation
International competitiveness
Exchange rate
Foreign liabilities
Terms of trade

16. (c) Andrew Tibbitt 2017 16
End of slideshow