Microeconomic reform

Question 1

intro

Answer 1

• MER focuses on increasing productivity, efficiency and intl comp to increase AS and promote non-inflationary e/g
• Diagram for LT non-infl e/g
• Context: combat stagflation of 1970 Aus (structural supply side issue - 10% u/e in 1983 and 20% in 1975)
• Combated by heavy trade and financial dereg

Question 2

financial deregulation

Answer 2

• Entry og 16 foreign banks and removal of controls on i/r by RBA
• Increased access to funds = increased intl borrowing (NFD from 6-60% from 1980-2016)
• Increased expansion of K-intensivae industries
• Increased technical efficiency, decrease in borrowing costs, less cost pull inflation, increase intl comp, LT e/g increased.
• Evidence cuz CAD avg went from 4.8% 1980s to 4.3% in 1990s. (export demand increased slightly)

Question 3

trade deregulation

Answer 3

• Whitlam cuts (25% unilateral tariff cut) continued with Hawke industry statements in 1988-1991.
• Decreased in australia’s avg tariff from 25% 1980 to 1.2% by 2019.
• Exposed inefficient industries to more competition, led to reallocation of resources, increased allocative efficiency cuz mining.
• Increased competition + efficiency -> reduce prices, -> intl comp increases. Also LT e/g increases cuz productivity
• How do we know cuz 1980 avg inflation was 8.1%, in 1990s it was 2.0%

Question 4

labour market decentralisations

Answer 4

• Large scale decentralisation occurred via workplace relations act (1996)
• And work choices 2005 -> got wages to be indexed to productivity through decentralisation
• Introduction of australian workplace agreements, continuation of enterprise bargaining?? -> led to incentive effect.
• CITE STIMULUS GRAPH. 2.3-2.4% LP growth from 1991-2004. Increased technical efficiency!!
• P ^ = lower c-pull inflation, reduced X$ and increased intl comp
• Efficiency ^ = LT e/g increase. e/g increased from 2.5% to 4.5% (1990-94 and 1995-99)

Question 5

Labour market centralisation

Answer 5

• Reversal to decentralisation occurred with the fair work act which focused on increasing safety net of income
• Annually adjusted minimum wage
• 11 NES
• BOOT, better off overall
• Awards
• Safety net of Y increase without incentive effect decreased productivity
• STIMULUS: GRAPH the decrease in gradients
• Reduced technical efficiency, decreased c-push inflation, worsened intl comp.
• 2022 australia has highest minimum wage in world. STIMULUS ABOUT FLATLINING UNDER PREDECESSORS

Question 6

infrastructure

Answer 6

• Focuses on intl comp and future growth.
• Goal of increasing investment into infrasturcture
• Targeting capacity constraints and transport bottlenecks
• 2020-24 budget increased focused on infrastructure: 100 to 110 billion. Since start of covid, govt has allocated further 14 billion in projects. E.g. melbourne geelong railway, 2bn$ to urban congestion and rail projects etc.
• Will boost efficiency of transport networks = reduced X prices and ^ future growth/competitiveness cuz increased technical efficiency.
  Stats are yet to be seen cuz long term investment.
  Indeed, long implementation and build time lag is a limitation.