PP3 - Economic Growth + AD Flashcards
sources of eg
- Quality of labour / Entrepreneurs ( Human Capital )
- Increases in investment ( via AD )
- Improved factors of production efficiency / Technology
- Favourable institutional features ( Govt, Banking )
major sources
I - int competitiveness
G - government policies
A - aggregate demand
Percentage of AUS aggregate demand
C = 55%
I = 18%
G = 25%
( X - M ) = 2%
Percentage of China AD:
C = 35+%
I = 12%
G = 50%
( X - M ) = 3%
X = 3.5
M = 2.5
increases to consumption
- National income ↑
- Domestic savings decrease
- Increase overseas borrowing
- Unsustainable if consumption growth fuelled by access to easy consumer credit
increases to government spending
- countercyclical
- Spending via discretionary fiscal policy ( budget ) and non-discretionary automatic stabilisers
increases in investment
- Encouraged by AD > Output and higher consumption
- Take advantage of increased efficiencies and technological change
Long-term investment ie: $400B housing investment in progress
net export increases
- Encouraged by stronger world economy ( China + EU )
- Increased INT competitiveness + stronger exchange rate
- Stronger AUS economy → increases in imports ( higher SOL )
international competitiveness
Degree of ability for Australian exports and import competing firms to compete against foreign producers.
Factors of international competitiveness
P - Productivity
Q - Quality
R - retail Price ( Fx rates, inflation, costs )
S - Service
int comp sources from - higher productivity
Capital deepening + Higher productivity → lower average costs + higher incomes → increased efficiencies + int comp
depreciating currency + int comp
encourages dom prod –> cheaper exports –> increase exports
- Can devalue currency in downturn to stimulate growth
macroeconomic reform
- Fiscal Policy
- Monetary Policy
EG + AS
- increase in AS will lead to an increase in output at lower prices
- This will lessen inflationary pressures from increases in aggregate demand
Increase AS results in EG without inflationary pressures
positive effects of EG - nation
Environment ( greater level of protection )
Exports ( greater export income )
Poverty → lower poverty rates
positive effect of EG - government
Taxation ( increased taxation )
Spending ( less UE spending ) → larger surplus, long term infrastructure + investment projects
positive effect of EG –> households
Income ( higher real per capita income )
consumption ( increasing SOL )
savings ( higher levels of dom. savings )
Leisure ( increased quality of life )
Employment ( creation of employment )
postive effects of eg –> firms
Productivity growth ( LABOUR )
Technological progress ( Capital )
Investment ( To meet growing demand )
negative effect of EG –> external stability
Increases Imports → worsens CAD + Foreign Liability
Liability growth OK if for investment and purchase of capital goods
Higher borrowing increase borrowing costs
International Competitiveness hurt if increases in AD increases inflation ( Offset by decrease AUD )
negative effect of EG –> enviro
Pollutes natural ecosystem
Depletes non-renewable resources
Externalities - pollution, overcrowding
negative effect of EG –> equitable distribution of Income
Widens gaps between rich and poor
Social costs of inequality
Regional inequality
negative effect of EG –> employment
Structural UE
Declining industries
Capital investment
Self Esteem
negative effect of EG –> price stability
- ↑ AD, ↑ demand pull inflation
- ↑ employment ↑ Cost Push Inflation
-↑ EG ↑ Inflationary Expectations - ↑ Imports ↓ AUD ↑ Import Inflation
EG 1990-2000
- Post-recession that needed to happen, growth averaged 3-3.7%
driven by productivity growth
