Relationships between the Australia's economic objectives

*Compatible – relationships are compatible when promoting one economic goal actually helps the government to better achieve another goal. More of goal A = More of goal B. They are also compatible in the sense that if one objective is suffering then the other is also suffering.

*Conflicting – Relationships are conflicting when promoting or improving one economic objective undermines the achievement of another.

*Compatible & Conflicting – It is possible for both types of relationships to exist between the two objectives. Ie the relationship may be partly compatible in the long term but to some extent also conflicting especially in the short term.

Price stabilityPrice Stability and Rapid economic and employment growth – Price stability can be compatible with sustained or long term economic and employment growth.

Price stability eg low inflation creates a climate of good business confidence, thus encouraging productive investment in new plant and equipment which can bolster economic capacity and create new employment opportunities.

Components of economic growth (Saari 2006)

Aggregate Demand increasing faster than production...

Economic Growth

High inflation erodes business optimism and diverts scarce capital resources into speculative areas, doing little to promote production and employment.

Price stability strengthens international competitiveness at home and aborad, increasing local and export sales, production and employment.

Price Stability & External Stability- Price stability usually helps strengthen external stability, that is, they are compatible.

The avoidance of inflation lifts the price competitiveness of local firms as interest rates are not likely to rise and thus local firms are able to produce and compete better. This tends to slow imports.

Lower inflation in the longer term also allows us to enjoy cheaper interest rates locally relative to those overseas, leading to more attractiveness of investing or borrowing money domestically.

Cheaper interest rates, as previously mentioned, leads to firms being better able to compete overseas, and thus can attract not only domestic consumers...