Economic Growth

Economic growth is a key economic indicator that measures the increase in the level of an economy over a period, typically yearly or quarterly. It is a widely used tool since the 20th century for assessing economic performance.

Economic growth is measured through:

GDP (Gross Domestic Product): Reflects the overall performance of the
economy.
GDP per Capita: Indicates the economic performance of citizens, used for
comparing countries.

GDP and Economic Growth Explained

Economic growth is a primary indicator of a country’s economic performance. GDP measures the total value of goods and services purchased by businesses, households, government, and private entities.

Comparing GDP over recent years allows us to measure economic growth, but there are parameters:

High Economic Growth: Can strain the environment and natural resources,
leading to inequality.
Low Economic Growth: Can lead to hyperinflation or business closures.
Ideal Target: The Reserve Bank of Australia aims for an average of 2-4% per
year.

GDP per Capita

GDP per capita provides insights into a country’s economic performance and development. It is calculated by dividing the country’s GDP by its population, offering a view of the well-being of its citizens.

For example, while India's GDP may be higher than Australia's due to
greater resource production, GDP per capita reveals that the average
Indian earns approximately 2,200 AUD, whereas an Australian earns
around 55,000 AUD, indicating a significant wealth disparity.

Issues with Using GDP

GDP has faced criticism for its narrow focus, as it does not capture all aspects of performance and well-being.

Factors Excluded: Leisure time and neighborhood quality are not included in
GDP.
Factors Included: Production of unhealthy food is included, despite potential
negative impacts.

Unemployment

Unemployment is an economic indicator that highlights the number of individuals actively seeking work as a percentage of those participating in the labor force.

It is important to note that unemployment figures typically exclude those
who are sick, injured, or students.

Unemployment data is crucial for businesses, workers, and governments.

The unemployment rate is calculated by the ABS (Australian Bureau of Statistics) using the labor force survey. The survey gathers information from citizens to perform calculations.

Target Range: A target of around 5 to 6.5% or below is generally considered
healthy.
High Unemployment: Indicates a poor economic outlook.
Low Unemployment: Suggests ample employment opportunities and a positive
economic representation.

Types of Unemployment

Type Description
Frictional Occurs when someone is in between jobs.
Cyclical Results from low economic spending or a loss in sales by a business.
Seasonal Occurs due to changes in seasons.

Structural

Occurs due to the creation of enhanced goods and services, leading to a
mismatch of skills. Considered less desirable, especially with technological
advancements, and significantly impacts Australia's unemployment rate.

Real GDP

Real GDP is the economic output of a country adjusted for inflation.

Inflação

Inflation is an economic indicator denoting the rate of price increase for goods and services.

Despite negative connotations, inflation can indicate a healthy economy
due to improved quality and quantity of goods and services and high
transaction volumes.

Inflation is calculated using the Consumer Price Index (CPI). The Reserve Bank of Australia (RBA) targets an inflation growth of 2 to 3% per annum.

Unstable CPI (Drops): May increase demand, potentially stressing the
environment and natural resources.
Unstable CPI (Rises): Can lead to decreased affordability, loss of currency
value, and hyperinflation.

Consumer Price Index (CPI)

The CPI is a dimension indicator referring to inflation. It measures the
prices of 1000 commonly used goods and services, reflecting changes in
prices over time.

Example: During the 1991 Gulf War, an influx of refugees into Australia
increased demand and caused the CPI to rise for two consecutive quarters until
stability was restored.

Causes of Inflation

Increasing Prices: If the prices of resources like land, labor, or capital increase,
these costs are passed on to consumers in the form of higher prices.
Consumer Activity: Increased demand for goods and services leads to higher
prices, a fundamental law in economics.

Living Standards

When measuring economic performance, the goal in modern economies is to ensure a high standard of living for citizens, based on factors like culture, health, and economic indicators. The Human Development Index (HDI) is often used.

Human Development Index (HDI)

The HDI measures the standard of living, emphasizing that people and
their capabilities are critical in measuring a country's development. It
combines education, life expectancy, and income (GNI) to establish a final
value.

Qualitative Indicator

Indicators that are subjective, such as culture, freedom of expression, and
access to education.

Qualitative indicators are subjective and hard to determine but easy to see the connection between the factors.

Differences in Standard of Living Between Countries

In Australia, differences may arise from biased wealth acquisition or past political failures. Globally, historical contexts play a role.

Developed Countries: May have used borrowed money to drive their
economies.
Developing Countries: May face debt traps due to financial mismanagement.

Quality of Life

Quality of life reflects a country’s economic development and well-being, encompassing qualitative indicators that are not easily measured numerically, such as culture, ethnicity, expression, and employment opportunities.

Economists examine connections between factors like infrastructure quality.

Causes of Variation in Living Standards

Variations in living standards stem from:

Historical Factors: Colonial powers used resources from other countries, while
developing countries faced political and financial mismanagement.
Financial Investment: Through Western European countries and USA/Canada.
Accumulation of Wealth: Wealth and privilege accumulate over time.