The Australian government faces a number of formidable issues and challenges in achieving strong, sustainable economic growth. These issues have influenced the Australian economy significantly over time and include unemployment, inflation and external stability which all have had a direct impact to the economic growth and prosperity of Australia. Fortunately there has been a number of policy responses which include macro and micro economic policies and implementations over time to combat and provide a solution to these problems.
Traditionally economic growth has been regarded as the most important objective for economic management. Economic growth can be defined as an increase in a country 's productive capacity as measured by changes in real GDP over time. The factors that affect economic growth are the levels of aggregate demand (AD) and aggregate supply (AS). Increases in a country 's economic growth allows a country to raise its levels of output, employment, income and standard of living. Faster economic growth results in an increase in real GDP per capita meaning households enjoy a higher disposable income and as a result higher living standards.
One of the most important challenges that faces all contemporary economies is the problem of unemployment. Unemployment refers to a situation to which where individuals are unable to find a job but are actively seeking employment. Unemployment is a major cost to an economy, because it results in the opportunity cost of lost production, as well as increased social welfare payments and a loss of taxation revenue. It also restricts domestic output and growth and has many detrimental social costs which include a loss of skills and ...
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...nerally during periods of high economic growth AD rises faster than the increase in AS and firms are forced to raise prices leading to demand-pull inflation.
In conclusion, the issues of unemployment, inflation and economic growth have had significant impacts on the Australian economy. These issues are all closely related to each other as one will affect the other if there is an increase or decrease in one. Macroeconomic policies have helped to reduce the fluctuations of the business cycle in the short to medium term as seen through the recent GFC(Global Financial Crisis) stabilizing the economy. While the long term micro policies have been successful in improving living standards and making Australia internationally competitive. Australia has been successful in weathering the GFC and by escaping a technical recession through an effective macro and micro policy mix.
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