Learning Objectives

The performance of an economy is dependent on many factors: GDP growth, inflation rates, full employment and the equitable distribution of income. The government has set targets, known as macroeconomic objectives, for each of these factors. Together, they can construct an economic 'report card' that can be used to assess the performance of the economy based on how close Australia's economy reaches each target.

Economic Indicators

Economists use indicators to predict and confirm how close Australia is to reaching macroeconomic objectives.

Leading indicators are used to predict changes in the economy before they happen. These include the number of building approvals, employment adverts, business confidence or share prices.
Coincident factors occur at the same time as changes in economic activity take place. Examples include output levels, retail sales, interest rates, GDP figures or production of building materials.
Lagging indicators confirm that economic changes have taken place as they appear after the trend has occurred. These include unemployment rates, consumer debt levels or amount of savings in the bank.
Indicators of External Performance include the current account balance, the trade balance, foreign liabilities, terms of trade (prices of exports compared to prices of imports) and the exchange rate.

Macroeconomic Objectives

Sustainable Growth

Indicators: GDP, Real GDP or GDP per capita
Objective/Target: 3.25% per year
Benefits: Increases capacity of the economy to satisfy the needs and wants of consumers.
Problems: Bottlenecks, labour shortages and limited resources as the economy nears capacity

Price stability

Indicators: Consumer price index, Headline Inflation or Underlying Inflation
Objective/Target: 2% - 3% on average over a year.
Benefits of low inflation: Confidence rises, maintenance of international competitiveness, efficiency not affected.
Problems (if inflation too high): Reduces disposable income, higher unemployment if demand-controlled

Full employment

Indicators: Unemployment rate, participation rate, underutilisation rate
Objective/Target: 4.5% - no cyclical unemployment
Benefits: Raises living standards, self-esteem, economic and social benefits
Problems: May increase inflation, wage rates

Equity in income distribution

Indicators: Gini coefficient
Objective/Target: Gini Coefficient about 3.
Benefits: Harmonious society, a living wage, distributive justice
Problems: Welfare payments may cause a reduced incentive to enter the workforce, moral hazard

Efficient use of resources

Objective/Target: Avoidance of deadweight loss
Benefits: Economic resources are limited, therefore making efficiency extremely beneficial.
Problems: Governments can over-regulate markets/cause market failure.