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Conomic Issues and Concerns

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Conomic Issues and Concerns

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  • May 15, 2013
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Economic Issues and Concerns
The main economic issues are economic growth, unemployment, inflation and external stability. Economic growth, unemployment and inflation are domestic issues, while external stability is an international issue. Economic growth can contribute to increased inflation, greater income inequality and damage to the natural environment. Higher level of economic growth can result in price increases and large wage claims contributing to a rise in the level of inflation. Even though economic growth improves overall quality of life it can polarise the distribution of income as high income earners reap more benefits from high economic activity. At 4.3%, Australia’s annual growth rate is bigger than any of the developed nations in the Organisation for Economic Co-operation and Development and quarterly growth rate of 1.3% is more than twice the most optimistic forecast. Unemployment means that an economy’s resources are not being used to their full capacity. Thus the economy is operating below its production possibility frontier. With high rates of unemployment the production of both consumer goods and capital goods is lowered, as supply cannot meet demand. Reduced production will lead to a reduction in the current rate of economic growth and standard of living. Those who are unemployed for long periods of time will lose their labour market skill, self-esteem or even become unemployable. Australia’s current unemployment rate is 5.1% Rise in inflation rates tend to have negative impact on the distribution of income because lower income earners often find that their income do not rise as quickly as prices. Higher inflation leads to wage-price inflationary spiral where wage increases lead to higher prices as producers need to maintain profits. In terms of unemployment higher levels of inflation will usually result in more contractionary fiscal and monetary policies, resulting in slower economic growth and high unemployment in the short to medium...