A s ae o . s h r d n. .

Measuring macroeconomic performance: Output and prices
Criteria for evaluating macroeconomic performance  Rising living standards – economic growth o Tendency for the level of output (i.e. quantity and quality of goods and services) to increase over time o There is an upward trend in living standards (as evidenced by GDP per capita) in Australia over time (up from roughly $32000 in ’73 to around $64000 in ’09) o Although fluctuations in the business cycle do occur, the downward swings are not as significant as the overall upward trend Stable business cycle o Short run business cycle  The tendency for economies to pass through periodic periods of economic expansion followed by economic contraction o low volatility in fluctuations of actual output around its trend or potential output. o Volatility of Australian growth rate (as evidenced by the SD of Aust’s real quarterly GDP growth rate) has decreased over time) o Great Moderation  Large fall in volatility of real output  Causes (debated)  Shocks to ec have decreased over time  Ec. has become more stable due to changes in institutional arrangements  Economic policy makers have become better at reducing fluctuations in the business cycle Relatively Stable Price Level o low (positive) rate of inflation o RBA’s inflation target is 2-3% Sustainable levels of Public and National debt o Public debt  borrowing by public sector from private sector  Influenced by government budget deficits/surpluses o National debt  borrowing by domestic residents from foreign countries  Domestic residents include both govts and private sector  Influenced by an economy’s current account deficits/surpluses o Unsustainable debt policy  Levels of debt where too much borrowing has occurred relative to the income flow that will be used to pay off that debt  Governments with unsustainable debt levels must cut