Price stability and full employment

o Inflation increase in prices (want stable prices)

o Aim is to be 2-3%
o Unemployments aim is to be 5-6% (NAIRU)
o Short Runs Phillips curve states that there is an inverse relationship between inflation
and unemployment. The government then can reduce one, at the expense of the rise of
the other, through its use of expansionary and contractionary macroeconomic policy.
o Government reduce unemployment can only be possible by increasing inflation
If RBA decreases cash rate (expansionary) then interest rates fall (vice versa)
leads to an increase inflation but decrease unemployment this will spur
consumption and spending which will increase aggregate demand, thus
spurring inflationary pressures, however an increase in aggregate demand will
increase the derived demand for labour, thus reducing unemployment

Economic growth and external stability

o High economic growth high incomes and buy imports increased import
consumption worsen the CAD and BOGS
o Higher eco growth investors are confident and increased speculation thus increasing
the capital inflows into Australia, this will appreciate the $AUD which deteriorates our
international competitiveness of our exports as exports are more expensive, foreign
economies will divert away from purchasing our exports and thus this will worsen the
CAD
o Low economic growth lower incomes and no borrowing cant pay of the debt that
the economy owes
o Low economic growth (when world economies are growing faster) Australia would
have greater export revenue because world economies will demand more of Australias
exports be able to service/finance our debt obligations due to greater export revenue

Eco growth and unemployment

o Eco growth target is 3-4%
o Eco growth and unemployment have an inverse relationship as eco growth increases,
unemployment decreases (vice versa) because labour is a derived demand. During times
of eco growth, firms must increase their productive capacity in order to meet consumer
demands thus increase their labour force to produce more, hence improving
employment
o Government tries to improve eco growth through microeconomic reforms it focuses
heavily on improving aggregate supply this leads to structural unemployment in the
short term due to the displacement of workers in contracting industries or the
privatisation of formally public companies
Effect: income inequality increases as low income earners are the ones
unemployed in these industries and thus suffer a loss in income