A country’s standard of living depends on its ability to produce goods and services. Almost all variation in living standards is attributable to difference in countries productivity. Productivity is the quantity of goods and services produced from each hour of a worker’s time. In nations where workers can produce a large quantity of goods and services per unit of time, most people enjoy a high living standard. The growth rate of a nation’s productivity determines the growth rate of its average income. In Australia, workers in general are paid well and enjoy a higher standard of living compared to the rest of the world.

In this era of globalisation, we have to compete with countries like China and India where industrial workers are paid peanuts, and enjoy a much lower standard of living. To maintain the higher pay and standard of living, Australians have to produce much more than workers in Asian countries produce. This can be achieved only by having a highly skilled workforce and utilising superior technology. Closing the door or fixing high tariff to protect jobs and higher standard of living is not an option.  Trade can benefit everyone in society because it allows people to specialise in activities in which they have a comparative advantage.

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Gross domestic product is the market value of all final goods and services produced within a country in a given period of time.

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Consumer price index is the measure of the overall cost of the goods and services brought by a typical consumer. The Bureau of statistics sets a basket of items that a typical consumer buys . The weightage is decided by surveying the consumers and finding the basket of goods and services a typical consumer buys. The current price of the items is taken and multiplied by the quantity. The price of the basket of the items is calculated. Index is calculated by dividing it by the prices of the base year.

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The percentage of change in the price index from the preceding period is inflation.

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In Australia a person is considered employed if he or she spent at least 1 hour of the previous work week working at a paid job (including self-employment or family business) . A person is unemployed if he or she is on temporary layoff, is looking for a job or is waiting to start a new job. A person who fit neither of the first two categories: such as full time student, home maker or retiree, is not in the labour force.

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Market economy is an economy that allocates resources through the decentralised decisions of many firms and households as they interact in markets for goods and services. The deciding factor of price is supply and demand for the item or service. Price of any good adjusts to bring the supply and demand for that good into balance. The law of demand is that, other things being equal, the quantity demanded of a good falls when the price of the good rises. The law of supply is that, other things being equal , quantity supplied of a good rises when the price of the good rises . At a certain price of the good – supply and demand have been brought into balance. That is the market price of the good or service. That means the price of any good adjusts to bring the supply and demand for that good into balance.

This is one reason communist countries suffered from shortage of items like petrol, oil etc. When the Government sets a lower price for an item, the quantity of good demanded exceeds the quantity supplied causing shortage for the item.

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Money has an inlet and outlet, namely supply of money and demand for money. To make it simple, in a money market those who save, supply money and those who want to borrow to invest or spend demand money. The economies market for loanable funds, like other markets in the economy is governed by supply and demand. The supply side of the money may come from many sources, like the savings of a people in a country, Government budget surplus, or money from overseas. Same way demand for loanable funds come from many sources.

Interest rate is the price of the loan. It represents the amount that borrowers pay for loans and the amount that lenders receive on their savings. High interest rates make borrowing more expensive and the demand for money loans decreases as interest rates goes up and vice versa. Because of this reason an equilibrium interest rate will be established sooner or later depending on the supply and demand for funds. When Government makes huge budget surpluses or national savings increases or foreign capital inflows increases in a country, naturally the interest rates will go down. As the interest rates goes down, demand for funds will increase and that will result in interest rates going up again . This is one reason Reserve Bank has to adjust interest rates on a monthly basis. A lower interest rate will increase investments and spending. This will overheat the economy and inflation will be the result. To counter the effect, Reserve Bank will increase interest rates to cool the economy.