The Reserve Bank of Australia is currently concerned that inflation is a problem within the Australian economy. They Keynesian theory would require the government and RBA to implement contractionary policies to control this situation.
Economic indicators such as price stability, unemployment rates and economic growth all contribute to showing the levels of inflation within the Australian economy. Inflation is the rise in prices over a period of time. Inflation is one of the most important economic indicators as it combines the results of the unemployment rates, price stability and economic growth rates to create a clear indication of the state of an economy.
In 1993 the Australian Government introduced a target band of 2-3% for inflation. The Australian economy, at this point in time is at 4.2%, according to stimulus 4, which is well above the Reserve Bank of Australia’s target band. Price stability is the government’s attempt at maintaining a general level of prices within an economy; which is also an attempt at maintaining a moderate level of inflation. Consumer Price Inflation (CPI) shows the rate of inflation as a percentage change in prices. Graph 13 illustrates CPI and shows that in 2007 the inflationary levels are at approximately 3 ½ percent and rising.
Gross domestic product (GDP) is the total value of all goods and services produced within a country over a period of time. GDP levels are an indicator of economic growth within an economy. The value of goods and services produced by an economy must increase for economic growth to occur....