3.3 - The goal of strong and sustainable economic growth

Defining what is meant by strong and sustainable economic growth
1. Economic growth occurs when there is an increase in the level of national production of goods and services between one year and the next.
2. measured by the annual rise or fall in percentage for GDP
3. goal of strong and sustainable economic growth - has 2 main dimensions. The rate of eco growth needs to be economically strong and sustainable so it is ideal and will not compromise the other goals of the government. It also needs to be ecologically or environmentally sustainable and not reduce the material and non material living standards of current and future generations.
4. We want GDP to rise by around 3-3.5% each year over the economic cycle.
  1. should be low inflation, full employment, external stability, equity in income distribution and improved material living standards
5. If GDP rose by 4-6% our L.S would drop and we would be near our productive capacity. Supply would not keep up with demand, rising inflation. We would experience shortages meaning we would have to buy more imports to keep up, increasing our CAD.
  1. Current Account Deficit (CAD) - total value of current payments (debits) for goods, services, primary incomes and secondary incomes exceeding the total value of credits.
6. too slow,say 1-2% we would experience high levels of unemployment leading to poverty, falling material living standards and reduced equity.
7. look at the rate in which the economy can grow its production without jeopardising the living standards of future generations
8. quite greedy for non reusable resources such as water, minerals and air.
  1. need to be careful. Ripping down a forest to replace it with a new freeway may maximise our living standards in the short term but will affect our children's living standards as they wont have the same air quality.
The effects on living standards of failing to achieve strong and sustainable economic growth.
1. both costs and benefits for societies material and non material living standards both in the short and long term.
2. Economic growth affects our material and non material living standards
  1. main reason we want strong growth is to satisfy our unlimited wants and needs.
  2. 1992 and 2013, Australia enjoyed 21 years of expansion without the situation of recession. This means we could enjoy the pleasurable items such as computers, iPads, cars,travel and a wider choice of food.
  3. Rapid growth is great because it increases income per capita meaning we get more money to spend on these items.
    1. negatives to rapid growth. It isn't environmentally stable. It has caused major externalities including pollution and climate change.
  4. slow growth is not economically sustainable. Due to our increasing population, we need GDP to rise to allow us to survive. If it doesn't rise we would experience high levels of unemployment and incomes would drop.
  5. ideal situation would be on that is strong and sustainable economic growth that focuses on minimising the negative externalities that arise.
3. Economic growth affects employment, unemployment, incomes and living standards.
  1. During recessions firms employ less labour and other resources as they cut production levels. This will lead to lower incomes and a reduction in material living standards
    1. during the GFC. Our GDP decreased to only 1.6% meaning that many jobs were lost and incomes reduced to a minimum. Non material living standards were also lost. Many people were suffering from self esteem issues and felt that they were no use to society at all.
  2. Failing to achieve rapid growth means that we can be more environmentally stable
  3. More rapid growth in GDP leads to an increase in the demand for labour and other resources, so unemployment falls and incomes rise.
  4. Benefits of becoming more efficient are evident in the long term but in the short term, may become a hassle. Usually it involves cost cutting measures including replacing workers with technology, increasing the level of structural unemployment.
    1. In order for this to be environmentally sustainable, resources may need to be allocated away from polluting industries that use dirty technology.
4. Economic growth affects inflation and living standards
  1. growing economies usually have strong rises in AD and the full use of labour and other resources
  2. when spending occurs in an economy where it is close to its productive capacity, pressure is placed on demand and cost inflation which leads to higher prices and reduced purchasing power.
  3. to be environmentally stable. an extra cost may be added. The fed gov carbon tax is an example. In the short term this would raise production costs for firms, raise the prices of goods and services and cause a rise in inflation. However in the long term, it is preserving resources for future generations.
5. Economic growth affects our trade balance
  1. Strong rates of economic growth can lead to an increase on the money spent on imports
    1. Could be because firms may need to buy more equipment or materials to allow them to lift production. Or it could be due to rising household incomes some of which will be spent on imports such as holidays and cars.
      1. Australia’s trade balance is likely to be weaker or in deficit.
      2. This effect could also bring strong economic growth involving expansion of our export industries and capacity, helping our trade balance.

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3.3 - The goal of strong and sustainable economic growth

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