The economy is a system of markets (e.g. goods, money, labour markets) which can be affected by market controls (eg, taxes and interest rates). These together generate production, stimulate consumption, and balance economic activities, so that Australia's population has access to income and wealth (in the form of assets) and the opportunity to consume goods and services. The more productive or efficient the economy is, the more income, wealth and consumption possibilities are available. Higher production may also assist the economy to be resilient in the face of international economic shocks.
The productive capacity of the economy is often measured by Gross Domestic Product (GDP), which indicates the extent of production and consumption in the economy. GDP can also be taken as a measure of the competitiveness of the Australian economy. However, GDP is not directly related to wellbeing, rather it is a measure that measures the growth of the economy per se.
Theoretically, a productive economy means that more economic resources are available to all people. However, the wellbeing of society is more directly indicated by looking at the standard of living of individuals and families.
Having high income or reserves of wealth extends the range, quantity and quality of goods and services that can be consumed, and can indicate life success. Perhaps more importantly, people with limited resources can experience hardship in meeting the basic costs of living and may become dependent on others to have such needs met.
The effective distribution of income and wealth is therefore crucial in understanding whether all members of society have sufficient economic resources for basic needs such as housing, clothing and food. Productivity growth achieved, for instance, by increasing production from workers or capital investment is intended to support this distribution by improving living standards, resulting in more income available to be distributed.
In this commentary, economic progress equates to enhancing Australia's national income (broadly Australians' real per capita levels of consumption) while at least maintaining (or possibly enhancing) the national wealth that will support future consumption.
The headline dimensions that help Australians to assess whether our economy has progressed include:
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