Infrastructure Policies Flashcards
Infrastructure Policies
Infrastructure is the foundational physical structures and capital resources necessary for supporting economic activity, such as roads, railways, digital infrastructure, etc.
- This allows businesses to operate more efficiently by removing bottlenecks
- Bottlenecks occur when key infrastructure becomes congested and transportation of products within or beyond Australia takes longer than it should.
- By removing bottlenecks, businesses see reduced travel times, and reduced transportation times and costs.
Melbourne Intermodal Terminals (what is it)
In the 22/23 budget, the government announced $17.9b to mostly infrastructure projects, of which $3.1b is for a new intermodal transport network in Melbourne, which helps containers get from ships onto trains more easily and thus helps get trucks off already busy roads so as to reduce congestion.
The effect of Melbourne Intermodal Terminals on AS
If port-to-rail networks are improved, then transportation times and costs fall and transportation of goods becomes more efficient (e.g. lower fuel costs and faster delivery times.) This will reduce costs of production, and make businesses more willing and able to produce more, paving the way for lower prices and an increase in international competitiveness.
West Gate Tunnel Project
The West Gate Tunnel Project is a major infrastructure initiative in Melbourne, Australia, designed to alleviate congestion on the West Gate Freeway and provide an alternative route to the city centre. The project includes the construction of twin tunnels, new ramps, and cycling paths, aiming to improve travel times and enhance road safety.
Effect of the West Gate Tunnel Project on AS
Since there will be an alternate route to the city centre, there will be less congestion among the roads, and thus reduce transportation times. Causing transportation costs to fall and the transportation of goods and services becomes more efficient. (Due to lower fuel costs, and faster delivery times). This reduces costs of production and make businesses more willing and able to produce more, paving the way for lower prices and an increase in international competitiveness.
How more infrastructure impacts Aggregate Supply
More infrastructure improves efficiency for businesses and makes them more able to produce. Being able to do business more quickly and more cheaply i.e. not having goods stuck in traffic, or workers late to work, increases the willingness of businesses to produce as their costs are reduced and profits maintained. Overall this will increase international competitiveness, and productive capacity, thus increasing AS and shifting the AS curve to the right
How does the positive change in AS help reach the goal of SSEG
With more G+S being produced, but for lower prices, this would increase Australia’s level of aggregate supply and productive capacity and there is a higher long-term sustainable (non-inflationary) rate of economic growth. Thus Australia would move closer to achieving the domestic macroeconomic goal of strong and sustainable economic growth (a rise in real GDP of 3 – 3.5% per year).
How does the positive change in AS help reach the goal of Full Employment
With businesses encouraged to expand operations further, and increase production a higher demand for labour would occur, thus decreasing the unemployment rate even further, below the goal of Full Employment at 4.0-4.5%.
(Normally, higher demand for labour is good, but since our unemployment rate is already so low, it just decreases it even more)
How does the positive change in AS Improve Living Standards
With more G+S available for consumers and at lower prices, inflation is reduced, and material living standards are improved.
With less time spent stuck in traffic commuting (driving to school or work), stress levels are reduced and non-material living standards are improved.
What is Productive Capacity and how is it affected by Infrastructure policies
Productive capacity is the maximum output of an economy at a point in time when all of the land, labour and capital resources are being used. With aggregate supply policies, most of them look for improvements to efficiency so that the use of resources becomes more productive, so that businesses can produce more.
If aggregate supply policies allow firms to access previously inaccessible resources like land resources, so they can produce more we would say that they are expanding their productive capacity. However, if an aggregate supply policy is just allowing a firm to more efficiently use existing resources we can think about production moving closer to that productive frontier.
