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  • Writer's pictureShaun Brien

How factors measuring 'growth' could be losing you marks.

In VCE Economics there are many Domestic Macroeconomic Goals as well as Aggregate Demand and Aggregate Supply-Side factors which are looking at the 'growth' of an indicator. Some key examples of these are: productivity growth, wage growth and economic growth.

Often alongside these factors students will be expected to analyse graphs of data to make connections and draw conclusions about the impact these changes will have on AD, AS or an economic goal. However, there is a key mistake students make which is incredibly important to be wary of.

Figure 1: Wage Growth in Australia

If we were to analyse the above chart measuring wage growth. Wage growth is always an aggregate supply side factor as it is a cost of production for businesses. A common mistake students end up making is that when analysing the data they see that the numbers have been decreasing over time (eg. decreasing from 2.3% to 1.4% in January 2021). Due to this factor measuring growth, any number above zero for the measurement means there has been an increase in that factor. Therefore, even when wage growth decreases to 1.4%, the cost of production for businesses has still increased (just at a reduced rate) and therefore that is unfavourable for aggregate supply. This is the same when it comes to economic growth and productivity growth, any number above zero means that there has been an increase and that the number needs to be negative to mean that the indicator has shrunk. This may seem relatively minor, but these one percenter type skills can really make a big different on your end of year exam.

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