Examine the arguments for and against increasing economic growth

rates
Increases in real GDP are necessary to improve peoples standards of living,
since government have more revenue and can increase government expenditure
in areas such as: health care, the provision of infrastructure, and environmental
protection. However, negative impacts of economic growth are: income may not
be shared equally in rural areas, and negative externalities may occur such as
pollution and depletion of natural resources due to rapid economic growth.

Investigate the economic and social problems created by

unemployment
Economic Costs
Opportunity Cost
The opportunity cost of unemployment is that the economys resources are not
being used to their full capacity, thus the economy is operating below the
production possibility frontier.
Lower living standards
Lower living standards due to reduced production causing a reduction in
economic growth.
Decline in labour market skills for the long term unemployed
Unemployment leads to a loss of skills, self-esteem and experience for people
unemployed for long periods of time.
Costs to the government
High levels of unemployment will result in increased transfer payments
(unemployment benefits). This decrease in govt. revenue and increase in
expenditure will cause a deterioration of the budgets balance.
Lower wage growth
High levels of unemployment means that there is an excess of labour supply in
the economy, which should lead to a fall in the equilibrium level of wages.
Social costs
Increased Inequality
Unemployment means a loss of income, and widens the income gap contributing
to poverty and overall unequal distribution of income.
Other social costs
Loss of work skills, family tensions and breakdown, increased levels of crime

Analyze the effects of inflation on an economy

Inflation is the main constraint on economic growth, since as prices rise
consumers reduce spending and consumption. Inflation also distorts economic
decision making of producers and consumers. High levels of inflation will force
consumers to spend rather than save, because the purchasing power of their
money will reduce over time. Sustained low inflation is likely to encourage
consumers to save a higher proportion of their income. Inflation will also lead to
wage increases, as employees will demand higher incomes to compensate for
the erosion in purchasing power of their nominal wages. High inflation rates tend
to have a negative impact on the distribution of income because lower income
earners often find that their incomes do not rise as quickly as prices. Higher
levels of inflation will usually result in more contractionary fiscal and monetary
policies, resulting in slower economic growth and higher unemployment in the
short to medium term. High inflation also results in increased prices for
Australias exports, reducing international competitiveness. This will also worsen
the CAD as consumer will switch to imports, worsening the trade deficit.

Discuss the effect of a continued current account deficit on an economy

Constraint on economic growth in the long term, since there is a limit on the
amount we can borrow before reaching a blow out in external accounts leading
to a debt trap scenario. A sudden loss of international investor confidence due to
high external imbalances and may lead to capital flight where foreign investors
move their investments to countries with more favorable conditions. More
contractionary economic policy to reduce the CAD, which will lead to reduced
economic growth due to a lack of spending. However, the Pitchford thesis states
that the private sector is accountable for up to 95 % of Australias foreign
liabilities are generated by the private sector. So as long as the foreign borrowing
help to fund profitable investment projects, Australias CAD should be
sustainable due to sustained economic growth allowing to meet interest
repayments.
Investigate recent trends in the distribution of income in Australia
Age and Education
The Abs shows that in 2009 the 45-54 age bracket earns the highest mean
income per week of 1158, while those aged 15-19 earn the lowest of 276. This
suggests that income levels in earlier years of working life are lower due to lack
of education and experience.
Gender and Occupation
Gender is another important influence on income distribution. This is shown by
the ABS stat where the average weekly earnings of women were only two thirds
of those of males in 2009-10. This suggests discrimination in the workplace and
is confirmed by the an observation of the average weekly earnings of males and

females working full time in the same occupation group where in 2010 males
were paid 1179 and females paid 764.
Ethnic and Cultural background
The Abs shows that immigrants from mainly English speaking countries income
levels tend to be higher than for those born in Australia likely due to stronger
education. However, migrants from non-English speaking countries have lower
income levels than Australian born likely due language difficulties. Indigenous
Australians income is also on 65 % of non-indigenous people due to lack o
education and rural occupancy, limiting job prospects.
The extent of income inequality is quite severe as in 2007-08 weekly incomes
ranged from around 150 per week to 1400 for the majority of people. Over half of
the population earns less than the mean income of 811 per week highlighting
this unequal distribution of income. Income also varies according to age. The ABS
showed that income tends to be highest between 25 and 64 which are the main
years of a person working life, while income levels are low in the early years due
to a lack of education and experience. Gender is also a factor, where in 2010, the
average weekly earnings of women were only two thirds of those of males likely
due to discrimination. This is confirmed by an observation of the average
earnings of males and females in the same occupation working full time where in
2010 males earned 1179 on average and females earned 764 average weekly.
Ethnic and cultural background

Identify the impact of specific economic policies on this distribution

The decentralization of the labor market has widened inequality between wage
earners. Under enterprise agreements, workers with greater skills and bargaining
power have achieved higher average wage increases than less skilled workers
who rely on industrial awards for wage rises. Monetary policy indirectly
influences distribution of income. For example, when interest rates are high, this
widens the gap since low income earners are borrowers and would have less
money to save, and would therefore receive a much lower return in contrast with
a high income earner. Microeconomic reforms such as reducing tariffs can are
aimed to improve efficient production methods, which may lead to firms
restructuring and cutting off workers. This will lead to income inequality since
unemployed persons will have no form of income and cause widening income
disparity.
Analyze the economic and social costs of inequality in the distribution
of income
Economic Benefits
Inequality acts as an incentive for the labor force to increase education and skill
levels to obtain a job. Inequality encourages the labor force to work longer and
harder through the incentive to earn higher incomes. Inequality makes the labor
force more mobile since it provides an incentive to move to high job prospect
areas which is an efficient allocation of resources and a higher rate of economic
growth.
Economic Costs

Inequality can reduce economic growth as low income earners spend higher
proportion of their income than higher income earners. This means that an
economy with a high level of income inequality will have relatively lower levels of
consumption and higher levels of savings, causing reduced economic growth,
and living standards. Inequality creates poverty and social problems which
reduces educational opportunities and lowers self-esteem. Inequality increases
welfare payments and worsens the budget balance.