© Cambridge University Press 2015 Cain et al Chapter 1 Indicators of economic performance

© Cambridge University Press 2015 Cain et al Classical (free market) economies: –market based on supply and demand with little or no government intervention. Keynesian economic theory: –government needs to intervene in the economy to ensure the most efficient and fair use of resources. Milton Friedman – monetarism: –Supports a free market economy with little government intervention except via monetary supply. Economic performance indicators

© Cambridge University Press 2015 Cain et al Economic conditions During times of crisis, governments are more actively involved in a nation’s economic activity. The Australian government has generally advocated the free market. There is however a belief that government intervention is required to ensure all Australians enjoy a basic standard of living. Voters include economic management as a high priority when deciding which political party to vote for.

© Cambridge University Press 2015 Cain et al Six economic areas have been assessed in order to evaluate the economic performance of the economy: 1.economic growth 2.inflation 3.levels of unemployment 4.the level of money market interest rates 5.balance of payments 6.currency exchange rates. Measuring economic performance

© Cambridge University Press 2015 Cain et al Measuring economic performance (cont.) GDP measures the total value of production of goods and services in an economy over a period of time. Statistics are also collected on consumption – the use of goods and services by consumer spending. Inflation also measures economic performance. It is measured using CPI, which measures changes in the price level of a common ‘basket’ of consumer goods and services purchased by households: –high inflation means that money becomes worth less –low inflation increases Australian exports.

© Cambridge University Press 2015 Cain et al Measuring economic performance (cont.) The unemployment level is an important indicator of economic performance. If the unemployment level is high, then: –income tax revenue falls –government expenses rise –crime rates increase –stress in unemployed individuals may increase. The level of interest rates can also affect economic performance: –low interest rates may result in more money being borrowed –high interest rates may result in more money being saved.

© Cambridge University Press 2015 Cain et al The balance of payments measures the movement of income coming in and going out of Australia: –a surplus indicates that more money is coming in –a deficit indicates that more money is going out. Measuring economic performance (cont.)

© Cambridge University Press 2015 Cain et al If the Australian dollar rises in value, imports become cheaper and if the value of the Australian dollar falls, imports become more expensive. Common non-financial measures of the economy include: –quality-of-life –environmental factors. Measuring economic performance (cont.)