Lecture_2_2023_copy

Acknowledgment of Country

• La Trobe University recognizes traditional custodians of the land in Australia.

• Acknowledges ongoing connection of Indigenous peoples to the land.

• Pays respects to Indigenous Elders, past, present, and emerging.

Economic Overview

Lecture Topic

• Focus on economic issues and public policy.

• Lecture 2 covers short and long-run economies.

Recent Economic News Headlines

• Economic Growth: Australia's GDP showing signs of slowing. Link to article

• Inflation and Unemployment: Rising interest rates impacting economic stability. Link to article

Key Issues in the Australian Economy for 2023

• Encouraged to rank pressing economic issues facing Australia.

GDP Overview

GDP Growth Trends

• Graph: GDP per capita growth over time categorized by countries: Britain, Japan, Italy, China, India.

• Data from the Maddison Project Database, detailing Australian real GDP per capita growth.

GDP Measurements

• GDP per capita adjusted for inflation, measured in constant U.S. dollars, showing trends from 1960 to 2020.

• Relative changes of GDP considering cost of living differences.

Basics of Economic Growth

Key Concept: Rule of 70

• Formula: 70 divided by annual growth rate gives approximate years for a variable to double.

• Growth rates highlighted each lead to different doubling periods.

Long-Run Economic Growth

• Importance of technology and productivity in determining living standards.

Production Function

• Components of a country's production function:

  • Y = GDP

  • L = Labour

  • K = Physical Capital

  • H = Human Capital

  • N = Natural Resources

  • A = Technology

Implications of Production Functions

• Constant returns to scale result in specific output measurements per worker.

Economic Growth and Policy Recommendations

• Policies that can enhance productivity and living standards:

  • Encouraging saving and investment.

  • Attracting foreign investment.

  • Promoting education and health.

  • Ensuring secure property rights and political stability.

  • Fostering free trade.

  • Supporting research and development.

Global Economic Growth Trends

GDP Growth in Developed Countries

• Historical context: Japan's varied GDP growth since the 1960s.

• Comparisons with growth in Europe, the U.S., and Australia.

GDP Growth in Developing Countries

• Continued widening gaps in GDP per person compared to developed nations.

Trade Growth

• Historical context: Global exports from 1800 to 2014 indexed to 1913.

• Shows significant increases in trade correlating with GDP growth.

Unemployment Analysis

Latest Statistics

• Focus on the unemployment rate as an economic health indicator.

• Distinction between long-run (natural rate) and short-run (cyclical rate) unemployment.

Types of Unemployment

• Frictional: Time taken to match workers to jobs.

• Structural: Mismatch of business needs and worker skills.

• Cyclical: Changes due to economic fluctuations (e.g., recessions).

Inflation Overview

Current Inflation Rate

• The Reserve Bank of Australia aims for an inflation target of 2-3%.

Concepts of Price Level

• Inflation: Rising price level over time.

• Deflation: Persistently falling price level.

• Importance to measure inflation and its impact on economic values.

Interest Rates

• Distinction between nominal and real interest rates.

Costs of Inflation

• Various costs affecting economy: shoeleather costs, menu costs, relative-price variability, and others.

Concluding Notes

Final Thoughts

• Emphasizes on understanding economic variables for navigating public policy.

Resources

Additional Links

• Links provided for direct access to ABS data and RBA resources.