Discuss the Economic Policy Conflicts That Arise in the Pursuit of Economic Growth

Decent Essays
1. Discuss the economic policy conflicts that arise in the pursuit of economic growth
Maintaining economic growth between 3-4% has been the Australian Government’s main economic objective. By managing sustainable level of economic growth, Australia may benefit through positive effects such as higher capita incomes and living standards. Although Australia has had relatively stable rate of economic growth during the 1990s to 2000s with an average of 3.3%, Australia has had issues including the depletion of natural resources, as well as high current account deficits that may affect the long term. Also, the pursuit of economic growth can impact on the level of inflation, leading to uncertainty about future spending and investment. These
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In this case, people will act in a way that will bring a higher inflation rate, known as the wage-price spiral. This suggests that rising wages increase disposable income, thus raising the demand for goods and causing further pressures on prices. Eventually, higher inflation distorts economic decision making since producers and consumers change their spending and investment decisions in order to minimise the effect of inflation on themselves. These wage increases will result in cost push inflation, which occurs when there is a decrease in aggregate supply, and an increase in production costs such as oil prices, that producers pass on in the form of higher prices to consumers.
While there is a relationship between economic growth and inflation, monetary policy conducts inflation targeting of 2-3% over the medium term in attempt to reduce inflation. For instance, the RBA can use contractionary monetary policy by increasing the official cash rate, with interest rates adjusting upwards. This increase in interest rates will lead to a reduced incentive for businesses to borrow and invest and for consumers to borrow and spend. Also, by tightening the monetary policy, households will be encouraged to increase their savings, and retire debt. Although the tightening of monetary policy can reduce inflation, the opposing relationship of growth and inflation will in turn reduce aggregate demand since there is a decrease in spending and
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