topic 4 eco policies and management

Question 1

3 major objs of eco management

Answer 1

1. eco grwoth ^ in lvl g&S produced in an eco –> ^ no. material wants satisfied & raises the LS of inds in the eco
2. internal balance pursuing goals of price stability (low inflation) & full employment
3. external balance keeping the CAD, foreign liabilities & ER at stable, sustainable lvls

Question 2

quality of life

Answer 2

overall wellbeing of inds within a country according to their material LS & a range of other indicators eg. edu lvls, enviro quality & health standards

Question 3

eco grwoth & wellbeing (objs of eco management)

Answer 3

^ volume of g&S that an eco produces measured by annual rate of change in real GDP, % ^ in value of g&s produced in an eco over 1 yr adjusted for inflation rate
* contributes to QOL bc more resources available (healthcare, edu, programs to protect natural enviro)

Question 4

eco growth benefits to a nation

Answer 4

• ^ SOL for pop
• improved job prospects for LF
• opp for ^ public investment in infrastructure & services eg. education funded through higher gvt tax revenues

Question 5

full employment (objs of eco management)

Answer 5

full use of all resources (LLCE) but focus on labour bc when labour resources not fully utilised, some will be u/ed –> social & eco problems
* eco is at its NAIRU aka natural rate of employment - always gonna be certain lvl frictional ,seasonal, structural, hardcore u/e in eco –> lvl u/e remains after eliminating cyclical u/e caused by upturns & downturns of the eco cycle caused by supply side factors > deficiency in demand

Question 6

gvt can reduce u/e to its NAIRU through

Answer 6

successful implementation of macroeco policies
* microeco policies to reduce NAIRU over LT

Question 7

benefits of achieving (minimising u/e) full employment :

Answer 7

• fully utilising the eco’s current capacity to produce –> ^ LS
• minimise adverse eco & social problems associated w/ u/e (personal, family problems, loss of workforce skills, greater inequality)

Question 8

price stability (objs of eco management) check textbook

Answer 8

keeping inflation/sustained ^ in general price lvl at acceptable lvl
* doesnt mean gvt tries eliminate inflation altogether but sustain inflation at lvl cause minimal distortion to eco
* AUS GVT & RBA commitment to sustain avg rate inflation 2-3% over course of the business cycle

Question 9

a high lvl of inflation may (neg eco consequences) :

Answer 9

• reduce real value of income & Wealth
• reduce AUS international competitiveness due to rising production costs
• cause depreciation in ER as forex markets lose confidence in eco
• create uncertainty abt future costs & distort eco decision making
• distort pattern of resource allocation - inflation encourages speculation in relatively unproductive activities (eg. buying & selling existing rela estate) that simply redistribute income & discourage S&I in productive activities that contribute to hgiher output

Question 10

external stability (objs of eco management)

Answer 10

country meeting its LT financial obligations to rest of world so its external accs dont hinder internal eco goals eg. higher growth & lower inflation aka achieve external balance

Question 11

what are thhe commonly used measures of external stability?

Answer 11

• achieving a sustainable position on the CA of the BOP
• over LT, balancing our payments for improts of g&S & other income payments w/ our receipts for exports of g&s & other income receipts
• net foreign debt as % of GDP
• foreign debt should be kept at lvl where eco can afford to make interest payments on its debt, usually measured via debt-servicing ratio (% of export revenue spent on making interest payments on foreign debt)
• terms of trade reflects relative prices of AUS’ exports & imports
• ^ TOT improves external stability bc indicates AUS able to buy more imports w/ given quantity of exports
• exchange rate in ST, ER is measure of international confidence in AUS eco. high volatility in ER indicates lack of external stability
• international competitiveness
• improving AUS’ IC best way to maintain external stability over time

Question 12

AUS’ external imbalances

Answer 12

aus has relatively large external imbalances but during recent decades hasnt been major concern for AUS eco
* however improving it is a policy goal as lower ext imbalance –> reduce vulnerability to adverse developments in GFMs

Question 13

an equitable distribution of income & wealth (objs of eco management) (aims of their policies too)

Answer 13

overall obj of gvt policy create fairer Distribution of income & wealth in eco
* gvts accept when free markets operate w/o intervention, produce unfair outcomes bc some inds & groups in society have fewer opps than others
* gvts dont aim to remove all inequalities betw inds but agreed societies should make provision for needs of ppl arent able provide for themselves (aged, disabled, ill) & unable to find work
* gvt policies aim to reduce some gap betw higher & lower income earners through redistribution policies eg. higher tax rates for high income earners & swp for lwoer income earners esp w/ families
* to address generational poverty/social disadv, gvt policies aim to improve opps for all aussies to achieve potential via access to edu & other opps
* policies need to address specific areas of ineq w/ macroeco policies to ^ eco grwoth, keep inflation low, reduce u/e

Question 14

environmetnal sustainability (objs of eco management)

Answer 14

eco creavity may create side effects eg. pollution & deplete natural resources
* to address problems, gvts sometimes est enviro objs eg. reduce GG emissions, improve energy efficiency, etc
* enviro objs part of gvt’s framework of eco management & large amt money spent by fed & state gvts on enviro programs
* traditionally, gvts willing trade off some LT enviro objs in favour of benefits of ^d eco activity in SW but awareness growing of climate change, ecologically sustainable development increasingly imp eco obj

Question 15

the goals of gvt policy in 2024 (check textbook FOSHO)

Question 16

(3) conflicts in gvt policy objectives

Answer 16

when achieving goals of eco growth, low inflation, low unemployment, enviro sustainability, external balance simultaneously - but when trying to achieve 1 goal, gvt may limit its ability of achieving another

2 main conflicts
1. achieving simultaneous reduction in u/e & inflation
2. achieving eco grwoth & external balance
3. other (enviro damage, greater inequality, SvsLT objs)

Question 17

achieving a simultaneous reduction in u/e & inflation (conflicts in gvt policy objectives)

Answer 17

gvt faces trade off betw lower u/e & inflation in S - MT
* stronger AD –> job grwoth & reduce u/e but likely upward pressure on prices
* weaker AD forces bus to restrain price rises & ^ u/e
* Phillips curve shows inverse relationship betw inflation & u/e –> trade off gvts face when making policy decisions but relationship not strong all the time
* inflation targeting –> flatter curve where lower u/e has less trade off w/ low inflation
* inflation targets moderate inflationary expectations to keep relatively stable when AD changes u/e
* since 1993 AUS low inf target 2-3% with policy priority over lower u/e

Question 19

achieving eco grwoth & external balance (conflicts in gvt policy objectives)

Answer 19

strong eco grwoth –> deterioriate CA on BOP bc ^ C&I –> volume of imports rise aka BOP constraint : limitation on rate of grwoth bc impact of high growth on CAD, reflect extent high CAD limites speed which eco can grow

Question 20

other conflicts in gvt policy

Answer 20

pursuing eco grwoth sometimes at cost of enviro damage & greater inequality in income distribution
* eg. if gvt approves extensive mining projects w/o regard to enviro effects, achieve faster eco grwoth but sig cost to natural enviro & damage other industries eg. tourism
* gvt reduces AUS’ CO2 emissions may impost costs on HHs & industries that slow eco growth
* eco reforms can have neg social effects eg. relying on user-pays charges for public services –> neg distributional consequences for ppl on lower incomes
* enviro preservation & achieving equitable distr of income & wealth are LT challenges for gvt policy
* betw S&LT objs bc policies for LT goals often involve sig structural change & substantial costs in ST eg. ^ lvl u/e or add costs to gvt
* gvts often focused on ST objs bc political considerations eg. avoid unpopular policies than LT objs may not deliver benefits for soem time

Question 21

economic policy mix

Answer 21

combo of macroeco (F&M) & microeco policies gvt uses to achieve its eco objs
* use combo of both ‘eco policy mix’ to capture overall impact of range of macro & micro policy measures implemeneted

macroeco policies eg. gvt budgets & changes in lvl IRs impact overall lvl eco activity –> influence lvl AD in eco

microeco olicies measures to improve operation of firms, industries, markets by achieving change at lvl ind firms & industries –> influence AS of eco (improve productivity & efficiency so overall lvl supply can ^)

Question 22

macroeco policy

Answer 22

main role manage bus cycle (changes in lvl eco activity) bc never constant, ecos subject to ups & downs in BC from changes in lvl AS & AD
* gvt macroeco management (use gvt policies to influence the eco to reduce large fluctuations in lvl eco activity & achieving eco goals) designed to minimise fluctuations so ecos exp low rates of inflation & u/e, relatively stable eco grwoth

Question 23

how can gvt policies Stabilise lvl eco grwoth

Answer 23

smoothing peaks & troughs of eco cycle
* why macroeco policies are counter-cyclical policies
* during periods fast eco grwoth may need to reduce lvl eco activity to avoid excessive inflation or ‘blowout’ in CAD
* gvts can ^ lvl tax, reduce spending, raise IRs to reduce lvl activity
* if eco experiences downturn in eco grwoth can use macroeco policy to stimulate eco activity & raise lvl AD by ^ gvt spending, tax cuts, reduce lvl IRs

Question 24

hwow can gvts increase lvl tax, reduce spending, raise IRs to reduce lvl eco activity?

Answer 24

• higher tax rates reduce consumers’ disposable income & Reduce lvl spending & AD + reduce pressures on inflation & CAD
• reduced gvt spending lower lvl AD by lowering lvl aggregate expenditure in eco
• higher IRs make borrowing money less attractive, discourage borrowing & spending by consumers & businesses

Question 25

what is one of the major lessons of AUS’ eco performance over recent decades for macroeco policy?

Answer 25

macroeco policy not enough to achieve complex policy goals
* works effectively stimulating/dampening eco ST but much less effective dealing w/ LT problems (low productivity growth, national savings, reduce carbon emissions)
* however macro & micro policies can be effective when used together

Question 26

microeco policy

Answer 26

policies for ind industries to ^ AS by ^ efficiency & productivity of producers
* gvt action to improve resource allocation betw firms & industries to maximise output from scarce resources
* central to gvt’s LT aim addressing political constraints on growth eg. inflation, external imbalance
* vary from practices in ind gvt departments ot policies for entire industries
* aim of microeco reforms to encourage efficient operation of markets & ^ AS (raise productivity so eco more adaptable to change, encourage AUS producers to use world best practices)

Question 27

microeco policy changed approach in recent decades

Answer 27

• recent decades reflected change in focus of eco management from influencing demand –> to supply, strat called “supply-side economics’
• limited effectiveness of macroeco policies mainly influenced lvl of demand turned policies focusing on AS lvl by improving competitiveness, productivity of AUS industries & raising workforce participation

Question 28

fiscal policy

Answer 28

macroeco policy can influence resource allocation, redistribute income, reduce fluctuations in BC
* instruments include gvt spending & taxation + budget outcome
* less important role than MP influencing eco grwoth but can have targeted impact on sectors eg. ind industries/parts of society
* use Fed gvt’s Budget to achieve gvt eco objs by varying amt gvt spending & revenue –> alter lvl eco activity –> eco grwoth, inflation, u/e, external indicators
* changes in gvt spending & revenue collection –> Reallocate resources –> change pattern of production in eco & redistribute income

Question 29

what is the Budget

Answer 29

annual statement from the aus gvt of its income & expenditure plans for next financial year, normally released May
* gvt’s planned expenditure & expected revenue
* includes all forms of revenue received by gvt including taxation & others
1. direct tax (PI tax, company tax)
2. indirect tax (customs & excise duties, GST)
3. other revs (dividends from GBEs)

Question 30

revenue in the Budget

Answer 30

• gvt’s planned expenditure & expected revenue
• includes all forms of revenue received by gvt including taxation & others
  1. direct tax (PI tax, company tax)
  2. indirect tax (customs & excise duties, GST)
  3. other revs (dividends from GBEs)

Question 31

gvt expenditure in the budget

Answer 31

major items of expenditure are social welfare, health, edu, public services, defence

Question 32

gvts making major policy changes (the budget)

Answer 32

make major policy changes in resposne to changing eco/political conditions
* msot accounced in the Buget but also usually make series smaller policy changes other times
* gvts attract more public attention (hence political advs) when announce ‘good news’ eg. new spending programs over weeks/months before Budget
* ‘bad’ announcements eg. tax increases/spending cuts often bunched togetheri n Budget

Question 33

what happens when gvts make smaller changes to fiscal policy throughout course of year?

Answer 33

• full costings of the decisions set out afterwards in next Budget/statement released December each year aka Mid Year Eco & Fiscal Outlook statment (MYEFO) which also updates Treasury’s forecasts for the Budget & future eco conditions which can sig affect planned revs & expenditures

Question 34

budget outcome (33 possible ones)

Answer 34

overall outcome of the budget indicates overall impact of fiscal policy on eco
1. budget surplus: positive balance when fed gvt anticipates total gvt rev (T) will exceed total expenditure (G) [T>G]
2. balanced deficit: neg balance when total gvt expenditure exceeds total revenue [G>T]
3. balanced budget: 0 balance when total gvt expenditure = total gvt revenue [G=T]

Question 35

gvt’s main fiscal policy aim is to..

Answer 35

achieve budget surpluses on avg over the course of the eco cycle
* gvt progress reflected in 4 yr projections for budget outcomes provided in the budget & other fiscal docs

Question 36

underlying cash balance to measure budget outcome

Answer 36

aka cash deficit/surplus
* gvt’s preferred measure of B -outcome bc indicates S-MT impact of fiscal policy on lvl eco activity & B’s call on cash resources from other sectors of eco
* calculated using cash accounting method (record revs & expenditures when money collected/spent)
* doesnt’ distinguish betw type of spending (capital/recurrent purposes) & doesnt reflect international standards of accrual accounting

Question 37

headline cash balance to measure budget outcome

Answer 37

reflects underlying cash balance + gvt’s purchase/sale of assets
* often billions higher/lower than UCB bc gvt assets sold/new assets acquired
* gvts sometimes create new financial asset since can borrow outside of B to ‘buy’ an asset even if just spending money on infrastructure
* adds to gross debt but doesnt add to underlying cash deficit

Question 38

fiscal balance to measure budget outcome

Answer 38

fiscal deficit/surplus
* calaculates rev - expenses less net capital investment?? basedon accrual accounting
* AA measures expenditures & revs when incurred/earned than when cash transaction occurs, more accurate than cash accounting
* but fiscal balance doesnt distinguish betw spending for capital/recurrent purposes

Question 39

net operating balance to measure budget outcome

Answer 39

operating deficit/surplus
* best measure of sustainability of B bc shows whether gvt meeting its recurrent (Day to day) obligations from exisintg revenue
* distinguishes betw spending for capital/recurrent purposes & removes spending on capital from balance –> result in smaller deficit/^ surplus but includes cost of depreciation (devalue of existing assets)
* rationale for separating 2 types expenses is capital spending diff from other bc adds to productive capacity & gvt’s assets
* like fiscal balance, based on accrual > cash accounting

Question 40

what do changes in lvl gvt spending, revenue collection (hence budget outcome) every year reflect?

Answer 40

impacts of 2 key factors
1. changing eco conditions (cyclical/non-discretionary changes)
2. changes in gvt policy (structural/discretionary factors)

Question 41

discretionary vs non-discretionary changes in fiscal policy

Answer 41

deliberate changes to FP eg. reduce spending/changing taxation rates
* eg. gvt ^d expenditure to stimulate demand
* influence Structural component of the budget outcome

2. non-discretionary changes in FP
   * final budget outcome can be influenced by factors other than planned (discr) changes to gvt rev & expenditure
   * caused by changes in lvl eco activity
   * recession, budget deficit ^ but strong grwoth deficit contract/budget shift to surplus
   * non-discretionary changes influence cyclical component of budget outcome

Question 42

automatic stabilisers

Answer 42

policy instruments in gvt’s Budget that counterbalance eco activity
* boom –> decrease eco activity
* transfer payments, progressive tax system
* influenced by lvl eco grwoth
* automatic bc built into Budget & activated by changes in lvl activity not by deliberate change in gvt policy relating to rev/expenditure
* built into B countercyclical role (smooth fluctuations in BC)
* high eco grwoth –> demand automatically slowed via higher tax revs & reduced gvt expenditure
* eco recession: boosted by ^ gvt expenditure via unemp benefits
* on own rarely strong enough to counter effects of eco cycle
* not powerful enough themselves to bring eco out of severe recession/curb eco boom. only reduce severity
* gvts still rely on discretionary policy measures to smooth eco cycle

Question 43

2 main automatic stabilesers

Answer 43

1. unemp benefits
   * eco recession –> lvl eco activity falls –> rise u/e –> greater gvt expenditure on u/e benefits
   * decline lvl eco activity –> ^ gvt expenditure
2. progressive income tax system
   * ppl higher incomes pay proportionately more tax than those lower incomes
   * eco boom –> employment opps ^ & incoems rise –> move workers into higher incoem tax brackets, previously u/e pay income tax –> ^gvt tax revenue

Question 44

3 budget stsance

Answer 44

impact of fiscal policy on eco grwoth
1. expansionary
* gvt planning to ^ lvl eco activity in eco through reducing tax rev and/or ^ gvt expenditure –> smaller surplus/larger deficit than previous yr
* multiplies ^ in C&I and stimuate AD –> ^lvl eco activity

2. contractionary
   * gvt plan to dec lvl eco activitiy by ^ tax rev and/or dec in gvt expenditure –> smaller deficit/larger surplus than previous yr
   * multiplies dec in C&I –> dampen AD –> decrease eco activity
3. neutral FP stance
   * gvt plants maintain gap betw rev & sending around same lvl as previous yr
   * no effecto n overall lvl eco activity

Question 45

how FP affects resource allocation

Answer 45

in/directly
* directly affect resource use via gvt spending in certain area of eco eg. transport infras to boost tourism grwoth
* indirect influence FP covers tax & spending decisions make more/less attractive for resources used eg. remove tax encourage

Question 46

when are gvts more likely to use direct measures to provide g/s?

Answer 46

if expect markets wont provide resources quickly enough w/o gvt intervention
* eg. natural disaster so emergency resources available ppl directly affected
* gvt can provide public goods bc unlikely private sector produce bc diff to prevent ppl from enjoying benefit eg. street lighting, clean enviro

Question 47

how will gvt indirectly affect resource use

Answer 47

taxing & spending policies to meet gvt objs
* if gvt wants discourage consumption of products w/o banning, high tax rates eg. tobacco (neg ext ^health care costs) in LT reduce costs to healthcare system

Question 48

how does fiscal policy affect income distribution

Answer 48

yearly, most important role of all gvt policy influencing distr of inc
* AUS progressive income tax system for mroe equitable distr
* higher incomes pay higher rates income tax –> gvts use money for transfer payments, communtiy services, (social expenditure) –> assist ppl lower incomes

Question 49

how do changes to taxation arrangements affect income distribution significantly?

Answer 49

• reduce tax rates at upper endo f income scale –> tax sytem less progressive –> less equal distr of income
• tax concessions (exemptions from tax for certain types of income eg. earnings from super) affect distr income w/o changing tax rates
• if gvt ^ rate of GST (regressive)< tax system less progressive –> lower income earners pay relatively higher prop of incomes in tax –> ^ income inequality

Question 50

relationship betw budget outcome & size of CAD and foreign debt

Answer 50

LT, budget deficit decreases national savings bc gvts finance budget deficits by borrowing from private sector savings
* budget deficit (more accurate as public sector deficit) form of negative savings/dissavings will reduce lvl national savings (public + private savings)
* very lil evidence of ST relation betw budget deficits & CADs
* AUS’CAD mainly related to persistent imbalances betw private S*I than public sector borrowing
* one reason for sustaining fiscal balance so FP not contributing to higher CADs LT

Question 51

how do budgetary changses involving gvt spending influence inc distr significantly?

Answer 51

• ^s spending on community services (health, aged care, LM programs, ^s in welfare payments eg. age pension) reduce income inequ bc have greater proportional benefit for low income earners
• gvt spending cuts often ^ incoem ineq bc low income earners more reliant on income support payments & gvt services than higher incoem earners

Question 52

what will happen with a depleted national savings pool

Answer 52

comeptition for a limited amt savings to finance domestic C&I –> more diff to access funds –> upward pressure on IRs –> private sector investment more expensive aka crowding out effect
* in closed eco –> decrease private investment but since AUS open, CO effect less as private sector borrwers turn to overseas sources of funds to finance domestic C&I –> inflow of capital & financial acc –> ^size of AUS’ foreign debt

• if gvt borrwos from overseas, inflow of funds directly –> ^ AUS’ foreign liabilities –> raise net primary income deficit (higher lvl foreign liabilities serviced w/ higher interest repayments)
• when gvt consistently runs large fiscal deficits over several yrs, CAD higher

Question 53

methods to finance a budget deficit

Answer 53

when gvt budgets for deficit, plan to spend more than rev received over current financial year

financed through:
* borrowing from the doemstic private sector
* from overseas investors
* from RBA (by printing money aka monetary financing)
* sell gvt assets
recent times relied almost exclusively on borrowing from domestic private sector

Question 54

borrowing from the (Domestic) private sector to finance budget deficit

Answer 54

selling Treasury Bonds domestically under a tender system where gvt sets value of bonds sold (determined by size of deficit to finance) & prospective purchasers tender to buy certain quanttiy at certian IR
* gvt accepts tenders, starts w/ those offering to buy at lowest IR to highest until all bonds sold
* gvt always certian it will fully finance its deficit & market will set IR on newly issued bonds (yay)
* BUT effect of deficit financed this way on private sector spending esp private investment
* crowding out effect budget deficit soaks up funds in AUS’ domestic savings pool –> upward pressure on IRs –. reduce private sector S&I, private sector ‘crowded out’ of domestic market by gvt borrowing since lenders prefer lend to gvt –> private sector less access to domestic savings & forced to borrow overseas
* main form of deficit financing

Question 55

crowding out effect

Answer 55

when gvt spending financed through borrowing from private sector –> upward pressure on IRs & crowds out private sector investors who cant borrow at higher IRs
* strength depends on eco conditions
* if gvt ^s fiscal deficit when eco recession, less likely crowd out private sector since investment spending low
* if gvt continues run deficit during periods strong eco grwoth when substantial private sector activity already occurring, likelier –> sig effect
* however, era of globalised FMs effect weaker since many FIs that buy bonds on domestic FMs from overseas
* overseas investors attracted by AUS’ low risk profile (aus gvt AAA credit rating) & IR differential betw AUS & other adv ecos

Question 56

borrowing from overseas (other methods of financing a budget deficit)

Answer 56

gvts can borrow from overseas FMs to minimise CO effect while stimulating grwoth
* era GMFs less likely to need raise funds on overseas markets since old distinctions betw domestic & overseas borrowing less relevant now & many overseas institutions participating in AUS’ domestic FMs
* if B deficit, gvt could any time borrow directly on overseas markets in overseas currencies if less expensive option than domestic borrowing
* when gvt borrows from overseas, directlyy adds to AUS’ foreign debt where interest repayments recorded as debits on the net primary income acc of BOP

Question 57

borrowing from the RBA aka monetary financing (other methods of financing a budget deficit)

Answer 57

GVT can borrwo from RBA to finance deficit aka monetising the deficit
* gvt prints moeny to finance its expenditures
* since 1982 deregulation of financial sector gvt hasnt done this deficit financing
* gvt avoided to snure doesnt ^ money supply –> inflation
* no longer drect connection betw implementing MP & Fp (now operate independently)

Question 58

selling assets (other methods of financing a budget deficit)

Answer 58

selling comm land/fed’s share in bus’ eg. Aus Post doesnt reduce lvl underlying cash deficit/net operating deficit bc they’re adjusted to reflect one-off transactions like asset sales
* in cash terms form yr to yr, gvt can create a headline budget surplus by selling assets eg. raise 10 bill through asset sales needs to sell 10 bill less in Treasury Bonds to finance deficit
* hwoever demand for funds from AUS’ pool domestic savings same bc buyers of gvt asset reduce savings by 10 bill/borrow 10 bill instead of gvt borrowing the moeny
* overall effect on pool domestic savings same but financing burden shifted from public to private sector

Question 59

how gvt uses surplus in 3 ways

Answer 59

• gvt budgets for surplus plans to receive more rev than spends in current financial year
  1. depositing it w/ RBA
  2. using it to pay off public sector debt
  3. placing moeny in a specially established, gvt owned investment fund

Question 60

history of using budget surpluses

Answer 60

during late 1990s & early 2000s gvt used surplus funds to pay off public sector debt –> reduce size of publci debt, frees up funds on FMs for other purposes
* eg.s ^ funds available for private sector investment –> eco activity offsets contractionary effect of fiscal surplus

Question 61

public sector borrowing & debt

Answer 61

budget outcome provides measre of underlying stance of FP but doesnt show full impact of public sector on eco
* full pic on public sector’s rev raising & expenditure activites, consider activities of rest of public sector in AUS (state & local gvts, GBEs like AUS Post, Sydney Water & Trains)

Question 62

where is the overall impact of the public sector on the economy reflected in?

Answer 62

the public sector underlying cash outcome
* public sector cash deficit/surplus shows borrowing needs/funds from all gvt lvls & GBEs
* gives most comprehensive indication of fiscal imapct of public sector on AUS eco
* negative public sector cash outcome –> overall public sector deficit

Question 63

public sector cash outcome trends

Answer 63

surplus from late 1990s until 2008-09
* reversal of fed gvt’s Budget position from surpluses throughout 2000s to deficit GFC main cause of public sector cash outcoming moving into deficit
* net operating deficit shows most yrs public sector revenue hadnt met its recurrent spending
* public sector debt in AUS rose during 3 periods (Early 90s recession, after GFC 2008, after COVID 2020)

Question 64

over a period of time, running a public sector deficit results in an

Answer 64

accumulation of public sector debt
* accumulated debt of gvt sector owed domestically & oversease
* debt accumulated by fed gvt, state, local gvts & GBEs

Question 65

public sector debt vs foreign debt

Answer 65

foreign debt amt owed by both public & private sectors to overseas lenders
* AUS’ foreign debt much higher than public debt mostly private sector borrowings
* when undertaking borrowings, gvts source their borrowings from within AUS although some participants in AUS FMs are overseas-based institutions
* by borrowing on domestic markets in AUD securities, gvts avoid being exposed to ER movements that may ^ debt & interest servicing costs

Question 66

the current stance of FP (def textbook this) this is so impotant

Question 67

the impact of recent fiscal policy (textbook)

Question 68

monetary policy

Answer 68

actions by RBA (AUS central bank) to influence cost & availability of credit in AUS eco
* macroeco policy can smooth fluctuations in BC & influence lvl eco activity, employment, prices
* primary macroeco policy to manage eco conditions in AUS

Question 69

where are the formal objs of MP set out in?

Answer 69

federal legislation in the RESERVE BANK ACT 1959 w/ broader responsibilities & powers of RBA
* complementary agreement betw fed gvt & RBA Governor ‘Statement on the Conduct of MP’ expresses shared understanding of how formal objs can be met by RBA & how MP should be conducted
* RBA authorised by these docs to make MP decisions independent of gvt through its board

Question 70

what is one of the RBA’s key roles

Answer 70

hold & manage deposits owned by commercial banks in AUS to settle transactions betw each other
* gives RBA ability to influence supply of money in eco –> IRs
* RBA normally exerts this by setting desired target for CR (IR onl loans in the overnight money market) & using OMOS to help achieve
* CR influences other IRs in eco

Question 71

contractionary MP is when the RBA… (+ expansionary)

Answer 71

tries to ^ IRs in eco –> reduce amt HHs w/ mortgages have available for consumption, bus investment more expensive –> lowers eco activity, reduce employment growth & inflationary pressure

expansionary MP when RBA tries lower IRs –> higher C&I, eco activity, employment growth, inflation

Question 72

3 objectives of MP

Answer 72

formally in RBAct of 1959
1. stability of AUS’ currency
* now means maintaining low, stable inflation & preserving the PP of AUD
2. maintaining full employment in AUS
* maintain low lvl of u/e
3. promote eco prosperity & welfare of aussies
* maintaining a stable, sustainable eco enviro

Question 73

since the early 1990s, the RBA prioritised which objective of MP? (textbook)

Answer 73

maintaining low, stable inflation through inflation targeting
* can be diff to achieve all 3 objs simultaneously

Question 74

MP inflation targeting obj reflects these important aspects of MP:

Answer 74

• MP effective fighting inflation since it’s a moentary phenomenon
• when assigned multiple goals in past, MP often unsuccessful achieving simultaneously
• when gvts control MP directly, their policy decisions can be distorted by political pressures esp elections when politicians wanna keep IRs low even if not best for eco
• giving independence to RBA conducting MP reduces risk of political factors distorting IR decisions
• inflation targeting generally successful keeping inflation low, stalbe w/o central banks resorting ti high IRs –> lower growth & ^u/e
• inflation targets need to establish & entrench expectations of low, stable inflation in S-MT bc expectations influence inflation

Question 75

RBA’s inflation target

Answer 75

keep inflation between 2-3% on avg over time
* avg on time = RBA’s inflation target is flexible, inflation doesnt have to be kept strictly within target band all times
* recognise inflation affected by shocks & events occur outside of RBA’s control at given times
* natural fluctuations should be accepted (often unavoidable anyway) if inflation kept within target on avg over M-LT
* flexible target recognises inflation betw 2 & 3% not desireable
* price stability is desirable bc alows HHs & vus prosper & improve wellfare
* prosperity not ult goal of MP so pursued by EBA even if ST inflation inconsistent with target
* flexibility allows RBA pursue broader objs when achieving them can be inconsistent w/ ST inflation outcomes
* almost 3 decades, overall highly successful bc since introduced, infaltion avged 2.4%

• successive gvts supported consistently since introduced in written agreements on framework for MP between Gobernor & aus gvt

Question 76

main eco indicators taken into account by RBA

Answer 76

• inflation rate
• inflation expectations
• wages growth
• u/e rate
• eco grwoth rate
• IRs
• ER
• commodity prices
• TOT
• global eco grwoth

Question 77

cash rate

Answer 77

main tool RBA uses to implement MP
* IR in overnight money market for very ST loans betw panks where loans made for overnight use
* influences many other IRs in eco & general lvl IRs influences inflation + overall lvl eco activity

Question 78

what is the board of the RBA responsible for

Answer 78

direction of MP
* every month except Jan publicly announces a target for the CR to achieve RBA’s eco objs
* board publicly announces a target for the CR to achieve RBA’S eco objs
* considers eco issues & developments in FMs & other eco policies eg. FP
* board meeting 1st tue every non JAN month & RBA publicly announced decision 2:30pm same day
* RBA ensures actual CR consistent w/ target set by board

Question 79

ES accs

Answer 79

bansk need to hold certain prop of their funds w/ RBA in ESAs to settle payments w/ other banks & RBA
* many interbank payments need to happen every day, made by transferring funds betw banks ESAs
* end of every trading day some banks dont have enough funds in ESAs to satisfy all their interbank payment obligations for the day while others may have surplus ES funds dont need to hold
* some banks hold excess ES balances in accs at RBA to store value

Question 80

overnight money market aka ST money market

Answer 80

market where banks w/ shortage of ES funds can borrow moeny from banks have excess ES funs beyond what they need in theri accs
* enables banks always settle interbank payment obligations w/ each other
* demand by borrowers & supply from lenders interact to set market price (IR) LIKE OTHER fmS
* unlike other FMs RBA intervenes heavily to ensure actual CR is w/ target RBA set using PIRC & OMOs

Question 81

how the PIRC is set

Answer 81

RBA doesnt have power to directly set actual CR at target it announces but can ensure never strays far by dealing w/ ES funds outside OMM
1. RBA normally pays an IR to banks on funds held in ESAs alwyas 0.25% below CR target –> banks w/ excess ES balances not incentive to lend funds to other banks if actual CR < 0.25% below target (earn greater returns by leaving extra funds in ESA)
* RBA’s deposit rate creates floor/min value for CR

2. RBA willing to lend ES balances directly to banks outside OMM
   * always sets an IR 0.25% above CR target
   * banks need borrow ES balances not incentive to pay rate higher than RBA’s lending rate in OMM
   * if CR higher than RBA’s lending rate, banks borrow ES funds directly from RBA
   * RBA’s lending rate creates a CEILING/max value for CR

floor (Deposit rate) & ceiling (RBA’s lendign rate) together form PIRC for CR
* NO banks w/ surplus/shortage of ES funds incentive to compelte transations in OMM outside corridor
* RBA’s policy target for CR exactly middle always ensure actual CR closely follows RBA’s target CR

Question 82

PIRC responsible for

Answer 82

implementing changes to RBA’s CR target bc ceiling & floor of corridor automatically set so CR target middle
* if RBA decrease target, floor & ceiling of corr shift downwards immediately & banks immediately incentivised to borrow & lend from each other within a new range consistent w/ new CR target
* no mechanism forces actual CR exactly same as target
* however strong convention in market that actual CR should be same as target
* borrowers & lenders in OMM follow –> changes to CR happen as soon as RBA announces change to target (RBA dont have to do anytihng besides make announcement)

Question 83

why RBA needs to manage supply of ES funds

Answer 83

• demand for ES balanced by banks fluctuates on daily basis esp on days with large transactions/payments in eco (gvt pay swp eg.)
• actual CR is price demand intersects supply of ES funds available
• RBA manages lvl supply ES funds to meet demand at price = RBA’s CR target
• manage supply keeps CR at its target daily
• w/o intervention CR bounce whenever demand fluctuates , resposnible for the market convention ensureing actual CR close w/ CR target

Question 84

how does the RBA manage the supply of ES funds

Answer 84

conducting DMOs
* purchase & sales affect supply ES funds bc they’res used to compelte the transactions
* if demand for ES funds ^ –> RBA & spply of ES funds to keep CR at target ceterus paribus –> RBA buy financial securities held by bank & in exchange deposit additional funds in their ES accs –> ^ supply of ES funds to meet additional demand
* if RBA needed to decrease supply ES funds to keep CR at target bc dec demand, RBA sell financial securities to banks & in exchange withdraw funds sitting in ESaS –> dec supply ES funds to lower lvl demand

Question 85

DMOs

Answer 85

actions by RBA in OMM to buy & sell 2ndhand fed gvt securities to influence supply of ES balances to keep actual CR at policy target
* usually involved using repurchase agreements where seller of bond/other financial security agrees to buy bond/security back from buyer later date
* RBA prefers using repos to conduct DMO bc highly flexible instruments & can manage ES supply more precisely than outright purchases/sales of finacnial securities

Question 86

summary of MP

Answer 86

RBA uses CR policy corridor to implement changes to CR target & uses DMOs to ensure CR stays at its target daily when demand for ES funds changes
* both features of OMM allow RBA controlCR

Question 87

how does the CR affect general lvl IRs

Answer 87

CR is the foundation of IR structure in AUS eco –> CR major influence general IRs bc affects how much costs FIs to fund themselves
* ^ CR –> mroe expensive for FIs to obtain funds in OMM
* to maintain profit margins, FIs respond by ^ IRs charged to borrowers
* reduce CR lowers funding costs for FIs (costs less to borrow moeny) & comp betw FIs pass this cost saving to customers as lower lending IRs

Question 88

other factors than the CR influencing the IR

Answer 88

margin betw CR & other IRs can change over time respnding to other factors
* mortgages, credit cards, personal loans,
* competition in the banking sector
* regulations
* conditions in global & doemstic FMs
* risk assessments relating to eco conditions

Question 89

most important statements by the RBA

Answer 89

changes in CR most imp statements by RBA
* board minutes, speeches by RBA officials scrutinised closely by markets
* FMs often interpret small changes in RBA’s description of eco conditions as signal of future IR movements
* markets predict future IR ^ or dec before announced w/ banks changing mortgage rates anticipating changes in CR

Question 90

unconcentional MP

Answer 90

• when CR lowered 0.1 RBA had to turn to other tools to provide further stimulus to AUS eco
• tools other than RBA’s CR
• RBA only use tools since GFC (adv ecos) responding to extreme eco events

Question 91

4 unconcentional MP measures in 2020 by RBA

Answer 91

1. asset purchases
   * RBA purchased gvt securities outright in 2ndary market from FIs & paid them by depositing newly created ES balances in their accs (aka quantitative easing)
   * purchases to lower IR on gvt bonds
   * announced target IR of 0.1% on 3 yr gvt bonds to help guide its purchases (aka yield curve target)
   * RBA buys other types gvt bonds w/o targeting specific IR
   * like CR irS ON GVT bonds influence other IRs in eco
   * lower through asset pruchases –> additional income stimulus
2. forward guidance
   * central banks use official commuications abt future stance of MP to influecne current IRs on LT assets
   * IRs on LT assets partly determined by what FMs think CR will be in future
   * by committing to low CR for longer period of time RBA tries lower IRs on LT assets by influencing IR expectations
3. more liquidity
   * RBA ^d size of its DMO compared to normal, created new funding facility called TFF provides very cheap additional loans to commercial banks can use to lend more funds to HH & bus’
   * TFF includes incentives for commercial lenders to lend more moeny to smaller bus’ closed mid 2021 but banks benefit from cheap funding provided for several years
   * RBA’s unconcential policies overpowered market convention normally kept actual CR at target
4. changing size of corridor
   * RBA changes structuer of policy rate corridor system
   * instead paying interest 0.25% below CR target on ES balances, RBA set corridor 0.1% below CR target late 2020
   * enable RBA to lower CR target to 0.1% w/o worrying abt risks of negative IRs

Question 92

negative interest rates

Answer 92

another form of unconventional MP but ineff stimulating eco activity
* RBA super unlikely in future

Question 93

hwo to think abt the influence of unconventional MP

Answer 93

through yield curve, shows how in general, loans of longer maturity tend to have higher IRs bc lenders expect higher returns to compensate for greater risks involved lending out money for longer POT
* work by reducing IRs on LT loans specifically
* conventional MP usually lowers entire yield curve (reduce IRs across board) but unconventional flattens curve (additional stimulus provided by unc MPs)

Question 94

the main effect of a change in general lvl IRs is to

Answer 94

change the demand for credit
* higher IRs –> borrowing mroe expensive –> deter borrowing

Question 95

*transmission mechanism**

Answer 95

explains hwo changes in MP stance pass through eco to influence eco objs eg. inflation & eco grwoth

• downward pressure on IRs through expansionary MP –> borrowing cheaper for consumers & bus’
• consumers often need borrow to make major purchases eg. house
• bus also borrow to invest in capital, upgrade plant, expand
• IR obtain by investing in financial assets OPP cost of investing funds in bus for owners
• fall lvl IRs –> encourage borrowing by bus & consumers –> rising C&i demand in eco –> raise eco activity lvl
• reduced IRs effect bus & consumers that already have loans (cost of servicing existing loans becomes cheaper) –> existing borrowers can use more income on additional spending than servicing their loans
• fall lvl IRs discourages financial inflows into AUS –> depreciation of currency –> AUS goods relatively more competitive in domestic markets (imports more expensive) & overseas markets –> stimulates AD –> inflation
• ^ AD from lower IRs –> higher eco activity & employment (esp if eco prev recession) –> higher prices & wages if eco close to full emp

Question 96

when would the transmission mechanism work in the opp direction

Answer 96

if RBA put upward pressure on IRs through contactionary MP
* tighten/loosen if dampen/boost lvl eco activity

Question 97

tightening & loosening MP effects

Answer 97

upward pressure on IRs –> dampen C&I –> lower lvl eco activity –> lower inflation, higher u/e

downward pressure on IRs –> boost C&I –> higher lvl eco activity –> falling u/e ^ inflationary pressures

Question 98

limitation of MP

Answer 98

change in MP can be implemented lamost immediately (doesnt require legislation/parliamentary approval) but takes considerably longer for change to bring desired impact on eco grwoth , inflation, u/e
* time lag 6-18 months before full impact of IR changes flet in eco
* eco circumstances can change during relatively logn lag period & make current MP inappropriate
* eg. series IR ^s reduce C&I may still be dampening eco activity when sudden global sowdown –> looser MP to avoid recession
* RBA needs to focus on likely eco conditions 12-18 months time when sets IRs , forecasts future values of macroeco variables (GDP, inflation, u/e)

Question 99

stance of MP in AUS

Answer 99

communicated by RBA in its CR target announcement every month except Jan
* more transparent decision making process RBA publishes official minutes from board meeting 2 weeks after takes place
* stance revealed by broader IR changes in eco
* s

Question 100

5 MAIN FACTORS HELP EXPLAIN MP stance

Answer 100

1. low inflation objective
   * gvt & RBA commit to maintain RBA’s inflation target (avg rate inflation betw 2-3% over course of BC)
   * MP major tool to acheive
   * RBA argues aus achieve higher eco growth in LT by raising IRs when ^ inflationary pressures
   * if RBA sees inflation moving too far outside target range –> tighten MP
2. inflationary expectations
   * reinforce expectations of sustained low iflation
   * if expectations remain low, bus plan lower price increases & unions push lower wage rises
   * RBA raise IRs & maintain high if need ot reduce inflationary expectations
3. labour costs
   * future IR movements dependent on movements in lvl inflation
   * cost of labour trends in productivity gorowth very sig determinant of inflation
   * best indicator of wages growth is wage price index
4. eco grwoth & lower u/e 2 other objs of charter
   * lvl grwoth & u/e indicate whether eco close to its supply constraint
   * if eco operating at pt close to capacity ( close to full employment of labour & other resources), continue grwoth in spending & demand wont lead to higher output & employment –> higher prices
   * if RBA FEELS LVL U/E APPROACHING the natural rate –> tighten MP to prevent excessive spending –> higher prices & wages
   * RBA believes NAIRU decreased recent yrs
5. external factors
   * AUS’ integration w/ global eco –> internaional conditiosn consistently influence RBA MP settings
   * if global conditions deteriorate, AUS likelier face slwoe eco grwoth & high u/e & RBa reduce IRs to prevent downturn
   * RBA monitors conditiosn in GFMs for early warning signs of inflationary pressure/eco volatility so can move pre-emptively to change MP settings

Question 101

microeconomic policies

Answer 101

policies aim to ^ AS by improving the efficiency & productivity of producers & industries
* action taken by gvts to improve efficiency of firms & industries to maximise amt output can be produced from scarce resources available
* central to gvt’s LT aim ^ lvl sustainable growth & reducing extent inflation & external imbalances constrain eco grwoth
* lifting AUS’ LT growth requires structural changes to lift productivity in existing industries to help AUS successfully transition to knowledge-based industries
* promote structural changes & assist AUS eco dealign w/ challenges & taking adv of opps by making product & factor markets more efficient

Question 102

3 microeco reforms

Answer 102

1. tax reform
2. improving edu system
3. supporting investment in tech infrastructure

Question 103

why is microeco policy diff from macroeco polciy

Answer 103

• instead of influencing demand, microeco policy influences supply aka Supply-side economics
• focus of SS eco is reducing bus costs –> shift AS curve right (more g&S provided at lower prices)
• policies focus on ^ lvl AS by improving competitivneess, productivity, efficiency of AUS industries
• many of AUS eco problems caused by structural factors cant be addressed through macroeco policies (only manage lvl eco activity)

Question 104

structural change

Answer 104

changes in pattern of production that reflect changesi n tech, consumer demand, global competitiveness etc
* results in some products, processes, industries disappearing while others emerge

Question 105

product markets & factor markets. when do markets work efficiently?

Answer 105

product markets : market for g&s

factor markets for inputs to production eg. LM, FM

work efficiently when goods produced at lowest cost & resources flow to areas where they have highest value

Question 106

why has structure of AUS’ eco changes recent decades?

Answer 106

^ trade, changes in patterns of consumer demand, implement wide ranging microeco policies betw early 1980s & early 2000s
* allocation of resources shift away from manuf towards mining & services sectors

Question 107

according to microeco theory, when will product & factor markets be more efficient?

Answer 107

if there’s greater comp betw private bus’ & market forces of supply & demand able operate w/o interference from gvt rules
* many microeco reforms aim remove distortions gvt policies can create
* eg. electricity price highly regulated & major input to production, necessity for HHs –> lwoer prices for HHs ST but lower investment in new energy generation LT if investors expect price regulation –> lower profits
* underinvestment in energy generation infrastructure –> less reliable energy supply, lower productivity, higher energy prices but some say to prevent large energy firms from exploiting their market power & extract excessive profits (anti comp behaviour potentially another form of ineff)

Question 108

how do microeco policies operate on diff lvls

Answer 108

decisions by ind gvt abt single company or sweep policies for entire industries

Question 109

kgeneral aim of all microeco reforms

Answer 109

encourage efficient operation of markets : lift productivity, improve flexibility & responsiveness to change, encourage AUS firms to take on world best practices to ^ AS

Question 110

3 dimensions improving efficiency of markets

Answer 110

1. allocative
2. technical
3. dynamic efficiency
   many microeco policies impact all aspects simultaneously
   * eg. past reforms to AUS’ telecommunications industry ^ comp –> force ocmpanies to become more tech efficient to maintain & improve market share, –> encourage innovation & dynamic efficiency –> attract more investment to telecomms industry (allocative efficiency)

Question 111

allocative efficiency

Answer 111

eco’s ability to shift resources where most valued & used most efficiently
* operation of market forces minimise distortions to market eco (impact of gvt regs, tax loopholes, subsidies, anti comp behaviour) –> more eff allocation of resources
* in free market eco, resources should shift to producers w/ greatest capacity to pay –> reflect relative efficincy & value to eco
* more eff producers make greater profits from production & willing to pay more for resources
* promotes structural change by allowing resources flow to aeas used most efficiently eg. remove tariff protection reallcoate resources from ineff producers only surviving behind barriers –> eff producers comp w/o protection

Question 112

technical efficiency

Answer 112

eco’s ability to produce max lvl output from given quantity of inputs
* measured by productivity of bus/eco (How much output can be produced from given quantity of inputs)
* greater productivity = bus can produce output cheaper –> more comp in domestic & global product markets
* bus operating in comp market have very powerful financial incentives to maximise tech efficiency –> mroe inclined to adopt latest production tech & use least-cost combo of resources to produce
* finance & insurance industry achieved higher multifactor productivity growth measured across labour & capital inputs than most sectors in AUS from 1997-2020

Question 113

dynamic efficiency (& innovation)

Answer 113

eco’s ability to shift resources betw industries responding to changing patterns of consumer demand
* eliminate distortions eg. excessive gvt regulation & subsidies improves dynamic efficiency & accelerates postivie structural change
* producers able respond quickly to changing patterns of demand in domestic & global eco
* producers able adopt new techs & innovative bus practices
* microeco reforms can ^ by ^ lvl comp in industries –> force producers more responsive to changesi n demand & supply

Question 114

microeco reform policies

Answer 114

• deregulation
• reforms to public trading enterprises
• competition poliy
• enviro management
• reducing protection
• tax reforms
• LM reforms

Question 115

deregulation

Answer 115

simplification/removal of rules constraining the operation of market forces
* aims to improve industries efficiency
* driven extensive structural change in many industries

• financial sector
• agri, transport, telecomms industry
• continuing regulation

Question 116

deregulation of the fiancnial sector (+ 2 steps) check textbook

Answer 116

F sector ensures bus can acess funds for investment & grwoth and investors can easily, confidently invest savings many ways
* microeco policies F sector 1980s aim make provision of financial services more efficient & competitive
* resulted in more comp enviro for financial services –> benefits spread across eco as consumers & bus pay lower prices to access finance –> facilitate C(inds)&I(bus)
1. floating AUD & remove RBA’s direct monetary controls over banks (more autonomy to set IRs on their deposit accs & loans consistent w/ market forces)
2. remove barriers to foreign markets entering AUS market

Question 117

GFC in deregulation of F sector

Answer 117

some bus in F sector collapse/acquired by other bus –> reduce comp in F sector
* many c’s crisis blamed on gvts too far deregulating F sector –> banks take too many risks w/ depositors’ money
* need balance betw goals of efficiency & competition which favour deregulation & goals of consumer protection and financial system ( favour regulation)

Question 118

finding balance in deregulating F sector

Answer 118

overarching aim of the Murray Review (Policy review of AUS’ F sector in 2014) –> ^ min capital requirements for banks more resilient to future financial crises + remove rules imposing tougher capital requirements on smaller banks
* AUS’ ^ capital built up in banks useful during COVID recession bc banks better position to support lending to bus during downturn
* consumers benefitted from laws banning exccessive credit card surchages since 2016 (rec from review)
* giving ASIC more explicit powers & direct mandate to deal w/ comp issues not implemented (rec of Review)

Question 119

deregulation of agri industries

Answer 119

create more comp in markets for farm produce
* past single GBE/industry cooperatives had monopoly buying farmers’ produce in dairy, wheat, wool
* deregulat monopolies –>farmers incentives to innovate & diversify outputs + tariff reductions –> AUS agri sector transform from regulated industry one of least regulated agri industries world
* AUS’ agri output expanded sig yrs after
* over last 2 decades annual growth agri productivity slowed sig partially from deteriorating climate conditions (S&LT)

Question 120

( 2 egs.) deregulation of transport industries

Answer 120

curcial to AUS eco bc large distances within & betw AUS and other nations
1. AUS’ domestic aviation industry
deregulated 1990 ending the Two Airline Policy since 1952 divided industry betw 2 companies
* several airline bus’ entered AUS aviation market since 1990 but after consolidation w/ industry, AUS 2 domninant airlien groups Qantas & Virgin Australia
* 2020 COVID collapse of travelling passengers lockdowns pushed Virgin group into insolvency –> voluntary adminsitration since sold & restructured

2. rail freign industry
   * efficiency improved by many reforms over last decade
   * AUS Rail Track Corp ARTC 1997 fed & state gvts est to manage national interstate rail network, sells access to privately owned freight bus’ & oversees maintenance & new capital works

Question 121

deregulation of telecommunications industry

Answer 121

telecomms imp contributor to bus productivity
* until early 1990s dominated by Telstra as monopoly provider of services to bus & consumers
* market opened up to comp 1990s –> new telecomms bus’ enter market & reduce telecoms costs dramatically esp mobile phones & long distance calls
* telstra still ahs largest market share for fixed-line & mobile telecomms
* many yrs telstra accussed making hard for competitors to gain access to its local monopoly over residential phone connections –> during rollout of NBN 2010s separate wholesale bus of providing access to infras from retail bus offering telecomms services to HHs & bus’ –> to improve access to ^ comp among retailers whilst making high-speed internet access more widely accessible

Question 122

continuing regulation (deregulation)

Answer 122

effective dereg means balancing competing policy goals
* excessive reg –> additional costs, constrain eco grwoth, undermine competitiveness
* excessive dereg/inadequate reg –> market failure, eco instability (most apparent in finance industry rn)
* AUS repealed many regulations that reduced comp, less regualted eco than most adv ecos
* many bus activity still regulated (enviro regs for agri & mining industries, construction, energy, transport have comprehensive safety regimes)
* pricing & investment decisions overseen by regulators in industries (gas, water, postal services, telecomms) dominated by oligopolies otherwise charge higher prices bc lack external comp
* professional services industries (law, accounting) partially help bus comple w/ & navigate regulation
* new areas bus emerge eg. ridesharing services (Uber), online services (Amazon), gvts respond w/ new transport, safety, privacy, tax, etc
* while AUS deregulated, changes in eco also need new forms of regulation

Question 123

reforms to PTEs (corporatisation of PTEs)

Answer 123

encourage PTEs to operate independently from gvt as if private bus enterprises
* eliminate political & bureaucratic supervision & making public enterprise managers accountable for enterprise performance
* corporatised public enterprises try achieve rate of return on assets comparable to private sector companies often operate in competitive markets (sometimes continue operating as regulated monopolies)
* must comply w/ competitive neutrality laws ensure PTEs dont receive artificial competitive advs over private bus bc they publicly owned
* PTEs subject to corporatisation: Aus Post

Question 124

reforms to PTEs (privatisation of PTEs)

Answer 124

• sell off PTEs so become private enterprises (whole/part)
• AUS extensive privatisation recent decades
• recent yrs state gvts privatised assets to free up capital for other purposes eg. transport projects
• gvts do to raise one-off revenues, ^ comp, encourage rational management & pricing behaviour, force bus’ to become more eff
• telstra, qantas, comm bank,

Question 125

National Competition Policy

Answer 125

agreement betw AYS’ fed & state gvts signed 1995 to encourage microeco reform throughout AUS eco
* comp policy aims promtoe comp in markets so firms ^ efficiency & lower prices for consumers
* under NCP reforms, gvts agreed implement reforms ^ comp in sectors operating monopolies (electricity, gas, water, road transport)
* gvts also agreed to remove special provisions giving publicly owned enterprises adv over private sector competitors (competitive neutrality)
* ACCC national comp watchdog established
* estd national regime to regulate cost of access to infrastructure –> where bus’ owned monopoly infrastructure asset eg. own airport/telecomms network), required to give competitors access to network at reasonable price

Question 126

key principle of competition in AUS is

Answer 126

Workable comp
* gvts generally aim maximise competition but workable comp means to acheive international competitiveness, maybe necessary to reduce no. firms in industry
* remaining firms can operate on larger scale & achieve lwest LRAC of production
* competition principles should be incorp into wider range of gvt regulations, service delivery systems & procurement –> extended to human services ( health, aged care)
* sig eco outcomes can be achieved by extending comp laws to public hospitals, services in remote ATSI communities, family & community services

Question 127

2017 changes made to AUS’ comp policy regime

Answer 127

expanded laws on misuse of market power –> bus couldnt to reduce comp in market (lower prices, refuse supply g/s, etc)
* before, regulators had to prove bus intended to harm competitors to convict misuse of market powers but nwe law regulators only establish bus practice in question harming competition (easier to prove in court)
* banned ‘concerted practices’ (sending price info to competitors even if no formal agreement to collude & raise prices)

Question 128

4 bus practices outlawed by C&C Act (u should know this)

Answer 128

1. monopolisation
   * firm uses its dominant market position to eliminate comp eg. temporary price cutting
2. price discrimination
   * firm sells same type g/s in diff markets at diff prices (reasons not related to diff costs eg. transfport)
3. exclusive dealing
   * firm sets conditions for supply exclude retailers from dealing w/ other competitors
4. collusion & market sharing
   * firms get together to fix prices/agree on market sharing arrangement reducing effective comp betw firms (cartel)

Question 129

history of microeco policy ( check textbook)

Answer 129

mid 1980s to early 2000s extensive microeco reforms industries dramatically changed in AUS
* fewer reforms achieved past 2 decades asp olicy focus shifted to more macroeco concerns eg. managing mining boom, consolidating gvt debt, navigating COVID pandemic
* implementing microeco reforms more diff proposition for gvts

Question 130

a key focus of the reform agenda in recent yrs (check textbook

Answer 130

better coordination betw fed & state gvts in areas where AUS’ Constitution gives states regulatory powers
* agreement across all lvls gvt diff
* many major recs made by policy reviews over last decade gained little political traction, not implemented
* but pandemic opp to revisit long-standing eco reform opps (tax, industrial relations, bus regulation) eg. replacing COAG w/ NFRC based on the success of National Cabinet brought fed & state gvts together to respond to COVID –> celebrated as reform to streamline & improve gvt decision making
* few signs of accelerating progress in diff areas of reform

Question 131

overall impacts of microeco policy (check textbook)

Answer 131

• microeco policies generally championed by successive aus gvts bc their potential to lift eco grwoth & LS
• but microeco reform always associated w/ ST costs (job losses, bus closures, damage to regional ecos) –> many reforms had strong opposition esp from sectors lose out from changes
• still achieved extensive LT benefits
• higher productivity grwoth as sectors of eco more competitiv,e innovative, flexible –> increase eco output & lower u/e –> higher LIS
• pattern of higher productivity growth in sectors most affected by microeco reform after implementation eg telecomms & financial services 1990s
• Porducitvity Commission recently stressed AUS’ poor productivity performance over last decade warrants reflection & justifies need for more meaningful eco reforms
• lower inflation from greater competitive pressures & ^ supply (both lower cost push inflation) in sectors affected by microeco reforms
• bc lower prices & higher wages, benefits of microeco policies relatively evenly hsared betw inds & bus’

Question 132

australia productivity grwoth since mid 2000s

Answer 132

weaker esp weak growth in labour productivity –> Productivity Commission, IMF, OECD argue further reform needed if AUS return higher productivity grwoth to lift LS
* OECD aus to strengthen comp & improve operating evniro for bus’ to boost productivity, make AUS tax system more reliant on consumption taxes & less on income taxes, reduce inequ in educational attainment to ^ productive capacity of AUS eco

Question 133

criticisms of microeco polciies

Answer 133

poorly designed reforms only replace 1 problem w/ another
* eg. privatisation bc gvts selling vital assets eg. airports to private sector monopolies –> higher one-off revs for gvts but large ^s in prices to consumers
* reforms often benefit wealthy investors while costs borne unevenly by lower income earners
* criticise policies to encourage globalised (reduce trade protection, barriers to foreign investment)
* question productivity stats exaggerate benefits of microeco policies
* workers expeirencing ^ in work intensity (ppl work longer hrs w/o extra pay) –> some ^ labour productivity lcimas can disguise ppl work longer hrs than previous decades but not recorded

Question 134

4 benefits 4 costs of microeco policies

Answer 134

BENEFITS
1. greater efficiency & productivity grwoth
2. new bus & job opps
3. higher eco grwoth & LS
4. lower inflation

COSTS
1. higher u/e ST
2. closure of ineff businesses
3. greater work intensity
4. less equal distr of income

Question 135

enviro management policies

Answer 135

to address issues of enviro sustainability (preserve natural enviros, pollution & climate change, manage use R & NR resources)
* lower priority than maintaining grwoth & Reducing u/e but significance rising recent yrs
* similar role in eco policy mix
* like microeco policies, aim infuence behavioru of ind HHs,bus, industries
* guided by research bodies (like other eco policies) eg. Productivity Comission & gvt targets
* influenced by international agreements betw gvts around world

Question 136

2 main policy tools for enviro management

Answer 136

1. regulations
2. market based policies

to influence behaviour & reduce enviro impacts

Question 137

targets gvt uses to guide its enviro policies

Answer 137

AUS’ Renewable Energy Target (expired 2020) create incentives for ^ use of renewable energy, target placed legal obligation on electricity companies to prodcue/pay for R energy –> AUS exceed target for electricity supply from renewable energy sources (solar, wind power)

Question 138

what is one of aus’ most imp LT policy goals for enviro?

Answer 138

‘carbon intensity’ of AUS eco & lower AUS’ carbon emissions –> msot diff area of policymaking in past decade in AUS
* several PMs lose office after backlash overp olicies relating to energy prices & emission reductions
* 2015 Abbott gvt announced emissions reduction target 26-28% on 2005 lvls by 2030, remains AUS’ main commitment to global efforts for emissions redunction under Paris Agreement, many polices used to achieve the emissions reduction target

Question 139

enviro regulations

Answer 139

trad policy tool to acheive enviro sustainability goals
* regulations laws/rules govern eco behaviour can prohibit person from doing something causes enviro damage eg. litter, produce polluting chemicals
* also can specify hwo g/s produced/consumers w/ rules for agri/mining techniques
* AUS enviro regulations made by local, state, fed gvts (or by their agencies)
* some impose requirements that quality of goods meet enviro standards eg, Fuel Quality Standards Act 2000 regulates quality of fuel for AUS to reduce lvls pollutants & emissions fromf fuels cuasing enviro & health problems (legislation)
* firms & inds may need tofollow enviro procedures eg. ENviro Protection & Biodiversity Convservation EPBC Act framework for protecting national enviro eg. Wolrld & National Heritage sites, Commonwelath marine areas, nationally threatened species, ecological communities
* states & territories responsble for state & local matters
* under EPBC Act developers must provide enviro impact assessment of proposal if has potential to harm matter of national enviro significance –> gvt can accept/reject proposal depending on enviro imapct

Question 140

market based policies for enviro

Answer 140

policies that create market-based incentivces for enviro protection increasingly usedi n AUS & other ecos recent decades
* market based policies include financial dis/incentives (subsidy, tax) to influence behaviour of HHs & bus
* market-based response of neg enviro ext is levy a tax/fee on production approx same as enviro cost of eco activity –> left shift supply curve –> ^ market price & reduce amt consumed in eco
* tax equal to vert dist betw curves shifts & influences market ‘internalising the externality’ bc makes consumers & producers pay or enviro costs
* gvts can provide subsidies to consumers/producers to encourage prduction of enviro beneficial g&S

Question 141

enviro problems arise bc of..

Answer 141

market failure
* enviro costs/benefits (externalities) borne by all society & not accounted by producers & consumers in market
* neg ext –> equilibrium price too low, prod too high

Question 142

gvts prefer tax/subsidy over tax/subsidy when influencing (enviro ?) eco behaviour

Answer 142

prefer taxes > subsidies
* diff to calculate full cost of ext –> calculate optimum tax rate to implement
* benefits to taxes bc discourage enviro damaging activites & raise gvt revenue for other enviro programs
* enviro tax revs consittue various prop of gvt tax revs in OECD countries

subsidies are grants provided by gvts to producers to reduce prod costs & promote enviro beneficial activities eg. R&D, large-scale R energy projects

Question 143

for enviro, shift in polici aims

Answer 143

shfit towards policies facilitate market development & support private sector investment than direct gvt intervention
* AUS potential global renewable energy leader by facilitating large scale private sector investment in new, low carbon industries & markets –> support cheap & reliable renewable energy & stimulate private investment in new, internationally competitive industries for manufacturing energy- intensive commodities eg. ‘green’ steel (steel made w/o fossil fuels) can generate substantial export revenue & create jobs in manuf previously declining

Question 144

what is another contested area of enviro policy that adopted market based reforms?

Answer 144

water managment
* gvt water management efforts –> create clear property rights for water –> estalbish water markets & improve water planning –> lower HH water use, ^ water allocatiosn to enviro –> efficient industry water use (from Porducitivty Comission review)
* but realised existing efforts not suff to meet future water policy challenges w grwoth in city pop & variable weather patterns from climate change
* need to improve water management & supply for urban areas to improve water recyling & use stormwater

Question 145

What is “decarbonising” economies?

Answer 145

reducing carbon emissions from economic activities that contribute to climate change, * greatest economic reform challenge of the 2020s.

Question 146

What threats does climate change pose to the global economy?

Answer 146

threatens economic output through extreme weather events, higher insurance costs, falling asset values,
* predict coming yrs and rising sea levels, droughts, floods, and unpredictable weather events.
* threaten global eco, stability of international relations, enviro
* despite widespread agreement CC problem, diff for gvts to agree how to respond & who should bear costs of structural changes to reduce carbon emissions

Question 147

What commitment was made at the 2015 Paris Agreement?

Answer 147

keep the global average temperature increase “well below 2°C above pre-industrial levels” and included both developed and developing countries, although (weakness) each country set its own emissions reduction targets.
* showed diff CC negotiations achieving compromise betw interests of high income & developing countries
* high income c’s large per capita GG emissions but developign have lower but rising lvls emissions rely on using cheap fossil fuels to expand outptu & improve LS
* came into force nov 2016
* unlikely met based on annual measurements bc reductions msotly achieved from weaker eco conditions & cheaper renewable techs than CC policies driving sustained emission reductions

Question 148

What is Australia’s current emissions reduction target?

Answer 148

Australia aims to reduce emissions by 26-28% from 2005 levels by 2030, a target set before the 2015 Paris Agreement. Australia also aims to reach net zero emissions “as soon as possible, preferably by 2050.”
* didnt specify yr
* aus has higher cost of emissiosn abatement –> cost of reducing each unit of emissions in aus higher than many co’s due to reliance on emissions intensive industry & energy production basedo n fossil fuels

Question 149

Why is Australia’s emissions reduction target considered low? What did the Climate Change Authority (CCA) recommend for Australia’s emissions targets?

Answer 149

Australia’s target is lower compared to other developed countries due to its reliance on emissions-intensive industries and fossil fuels, which makes emissions abatement more costly.

The CCA recommended a 30% reduction by 2025 and a 40-60% reduction by 2030, higher than the government’s current target.

Question 150

What policies does Australia use to meet emissions reduction targets?

Answer 150

Australia uses the Emission Reduction Fund, Renewable Energy Target, investments in low-emission technologies (ARENA), and the National Energy Productivity Plan,

Question 151

What is an Emissions Trading Scheme (ETS)?

Answer 151

market-based mechanism where businesses buy or receive permits to emit greenhouse gases. They can trade these permits, incentivizing companies to reduce emissions. It’s used in the EU, New Zealand, and China.
* can be internationally linked –> bus w/ excess emissions can buy permits internationally from bus that produce dewer emissions & hold spare permits
* system trading permits puts price on emission og GG & incorps real cost of carbon emissions into price mechanism
* market based mechanism to incentivise bus to develop new tech & processes to reduce emissions however risk carbon leakage

Question 152

What is “carbon leakage”?

Answer 152

emissions-intensive industries move to countries with no emissions targets, increasing unemployment domestically while failing to reduce global emissions.

Question 153

What was the significance of the Kyoto Protocol?

Answer 153

• global threat CC recognised (1997) , 160 nations was an international agreement that required industrialized nations to reduce greenhouse gas emissions. Its first phase targeted a 5% reduction below 1990 levels between 2008-2012, and its second phase pledged an 18% reduction between 2013-2020, although it only covered 15% of global emissions for only 37 countries

Question 154

centrepiece of AUS’ emissions reduction policy recent years

Answer 154

Emissions Reduction fund to replace previous carbon pricing policy
* firms paid out of fund to reduce emissiosn from their PPs –> reduce emissions at lowest cost of abatement
* projected submitted by bus to gvt’s Clean Energy Regulator –> approve –> firms enter auction, bid to sell emissions reductions at lowest lvl & lowest purchased by gvt
* criticise policy bc while pays small no. bus to reduce emissions, imposes no costs on otehr bus that ^ their carbon emissions so no guarantee it’ll produce overall emissions reduction

Question 155

climate change policies (Regulations)

Answer 155

ensure newly produced goodsmeet enviro standards consistent with aus aim to reduce gg emissions
* gvt policy decisions for agri, mining, transport have major effectso n carbon emissions

Question 156

international agreements for enviro management policies

Answer 156

often need international cooperation for effective enviro managemnet policies
* collective action bc ind natiosn cant address global enviro problems themselves
* wind nations often reluctant to impose strict enviro management policies on own eco if others not willing to do same

Question 157

Depletion of the ozone layer

Answer 157

lgobal pollution problem where atmospehric layer that filters out dangerous ultraviolet radiation
* related to emissins of chlorofluorocarbons into atmosphere from industry refrigeration units & aerosols
* to reduce, international agreement Montreal Protocol phased out production of ozeon depleting products

Question 158

TRAGEDY OF THE COMMONS

Answer 158

international agreements to prevent overuse of common international resources

Question 159

reasons why gvts intervene in LMs

Answer 159

• achieving macroeco objs eg. low inflation & macroeco stability (Since wages growth is a major influence on inflation
• achieving microeco objs eg. productivity grwoth & improved competitiveness for AUS bus & resolving disputes that arise in workplace (cost of labour generally represents ~60% bus costs so policy changes that influence labour costs are major influence on eco)
• achieving objs relating to distribution of income & wealth eg. ensure fiar min standards apply to all employees since wages main source income for most HHs

Question 160

wage determination in aus

Answer 160

not left to free operation of forces of supply & demand in LM
* gvt influenced wage outcomes in/directly through independent industrial courts & tribunals
* extent of gvt regulation of LM since Federation in 1901

Question 161

role of nationa l& state industrial systems

Answer 161

AUs traditionally regulated LM through mix federal & state laws overlaps betw diff systems bc AUS Constitution doesnt give fed gvt power to legislate directly over industrial relations, only gives fed power to resolve industrial disputes that cross state boundaries
* fed gradually expanded role in LMs over century through other constitutional powers
* fed gvt’s constitutional power extends to all employees of incorp bus & own emp
* state gvts handed over some powers to fed gvt (emps of sole traders, local gvt, state public sector) where WA only state hasnt referred powers to fed

Question 162

AUS industrial relations systems over time

Answer 162

separate industrial relations systems w/ 6 diff state systesm + fed system
* est min wages & conditions for employees through industrial awards for employees based on industry/occupation
* some awards mate at fed lvl others state lvl
* many emplyoers had to comply both fed & state systems bc some employees covered by state & others fed awards
* emplyoers w/ workers in diff states need comply separately w/ laws each state (maybe diff award standards)

Question 163

what did the inefficiency of having separate state & federal systems create?

Answer 163

pressure to move towards national industrial relations system
* since FWAct 2009, AUS had one that covered 9/10 AUS workers
* Cwlth replaced most state-based awards w/ simpler federal aways & established national system of occupation health & safety legislation replacing separate state systems
* state & territory regulation of LM limited msotly to state gvt emps now to a smaller range issues eg. regulating workers’ comepnsation, long service leave

Question 164

who is the nationa industrial relations overseen by?

Answer 164

FWC

Question 165

aus’ WAGE determination system

Answer 165

directly covers ~7/10 workers
* rules of national system in FWAct & related regs, est 3 main streams determine pay & conditions of employees
1. industrial awards
2. enterprise agreements
3. common law contracts
* distr of workers betw streams stable over past decade
* ppl outside national wage determination system can still influenced by national system

Question 166

wht are the 2 groups who are outside of national wage determination system?

Answer 166

1. inds whose conditions unregulations, divided evenly betw ind contractors & other bus operators (ranked)
2. inds whose conditions regulated by a state workplace relations system, divided betw state publci sector employyes, WA emps of small bus not incorp

Question 167

minimum employment standards

Answer 167

*AUS emps 10 guaranteed employment conditiosn set out in law through doc called National Employment Standards
* max weekly hrs of work: FT emp’s hrs work cant exceed 38hrs/week + reasonable add hrs work
* Right to request flexible working arrangements: parents/carers can request change working arrangements to assist for caring child eg. start & finish times, job sharing, work from home. employers only refuse justifying their actions in writing
* leave : emps right paid annual leave, public holidays, carers & compassionate leave, unpaid parental, community service & long service leave
* notive of termiantion & redundancy pay : employers give 1-4 weeks notice of job termination determined by how long ind employed, most workers entitled redundancy pay determined by duration of employment

Question 168

national minimum wage

Answer 168

safety net for employees not covered by award
* specialist Minimum Wage Panel within FWC responsible for setting min wages & casual loadings
* Panel conducts wage review annually, decision announced June yearly and in effect 1 July
* FWAct requires panel consider eco & social objs determining
* must assess perf & competitiveness of eco & consider macroeco impact of decision
* balance needs u/e & low paid workers bc high min wages discourage employers from hiring more employees
* can do commission research into wage related issues before making decision

Question 169

awards

Answer 169

set of pay & conditions specific to emp’s work/industry sector
* safety net of min wages & conditions
*establish min wage & working conditions for employees
* many employers pay above award wage rates but awards set min rates pay & entitlements
* instead single min wage rate, aus diff min pay rates in diff awards set by FWC

Question 170

what were awards like in the past

Answer 170

comprehensive docs outlining wages & working conditions in certain industries & firms
* under FWAct AUS’ award system restructured & streamlined from 4300 to 121 awards but some state awards ocntinue operate
* consolidated awards are modern awards

Question 171

‘over-award’ arrangements

Answer 171

emplyoees w/ CLCs/EAs where awards guided by emplyoment arrangements
* ~40% employees on award based arrangements

Question 172

modern awards

Answer 172

extend protections of NES
* tailor needs of industry/occupation
* types employment, arrangements when work performend, overtime & penalty rates, annualised wage/salary arrangements, allowances, leave, super, procedures for dispute settlement
* w/ NES provide basis for 3 main ways determine pay & conditions for employees

Question 173

individual flexibility agreement

Answer 173

• modern awards & EAs need include clause allows IFA ind flexibility arrangement enables employee & er to vary effect of award to meet ind needs w/o negotiating separate agreement
• flexibility clause only specific award/EA terms eg. when work perf, overtime, penalty rates, leave loading
• must leave employee better off overall after employee commenced employement & cant be offered as condition of employment
• flexibility clauses try easier to adjust work arrangmeents to particular needs of firms & inds while preventing emplyoers from using flexibility arrangements to reduce pay & conditions

Question 174

enterprise agreements

Answer 174

negotiated collectively between employer/s & employees usually represented by unions
* FWAct introduced employee right to engage in enterprise bargaining w/ employers if employees vote in favour of EA
* AUS slightly >avg EAs among OECD ecos
* must comply w/ NES & cant offer pay rates below mandated by equivalent award
* EAs must pass BOOT require employees better off overall by agreement than applicable award administered by FWC, applies to any ind flexibility agreement (a clause can be negotiated as part of EA usually ot vary working hrs)
* most common method wage determination in AUS formal system

Question 175

what do EAs (usually) cover

Answer 175

all workers up to management lvl in company/workplace
* unions usually negotiate these on behalf of all emplyoees in workplace even though most workpalces <1/2 emps belong to union
* normally cover wage increases, loadings for add work hrs, change workplace practices to ^ productivity
* wage increases declined for EAs

Question 176

AUS Workaplce Agreements

Answer 176

FWAct important change was abolition of ind contracts under formal industrial relations system aka AUS Workplace Agreements ‘unfair’ bc emplyoers greater bargaining power than ind emplyoees so often no genuine negotiation
* sometimes used to remove entitlements employees previously enjoyed under EAs & awards

Question 177

individual contracts (employment contracts for high income earners)

Answer 177

FWAct abolished ind contracts except for high income earners
* MAs dont apply if employee earning >threshold under Act
* employees only covered by provisions in agreement made w/ employer aka common law contract & by NES
* exclude from MAs bc award systems tries establish safety net for lwoer income workers & high incomes dont need protection of award system

Question 178

common law contracts

Answer 178

cover >1/3 workforce who have informal contracts providing extra pay & conditions over award entitlements
* most common in small bus, 1 or 2 pages w/ employment terms in an offer of employment
* enforced through ordinary law courts than industrial tribunals –> not part of formal industrial relations system

Question 179

key diff between EAs and CLCs

Answer 179

• KEY DIFF betw CLCs and EAs is CLCs made individually & cannot remove/trade-off min award conditions eg. penalty rates
• emplyoers must comply all award requirements applying to employees

Question 180

industrial dispute

Answer 180

employers/ees take action to disrupt PP to highlight disagreement betw themselves
* resolving disputes important role of industrial relations system
* changes to wages, work conditions, bus restructuring, actions considered wrong/unfair eg. dismissal
* system tries solve quickly, fairly bc industrial action –> reduce productivity, lower output, profits, damage bus’ customer relationships

Question 181

forms of industrial action from disputes

Answer 181

• strikes (emps withdraw labour & refuse to work)
• work bans (employees refuse undertake certain aspect of work)
• lockouts (employers refuse give employees access to workplace*

Question 182

how processes for resolving industrial disputes changed over recent decads

Answer 182

since early 1900s AUS mostly relied on system of specialist industrial tribunals to administer dispute resolution processes to avoid drawn-out disputes occurring in other c’s & allow independent umpire to make judgement basedo n fairness & bus conditions

Question 183

2 main forms of dispute resolution

Answer 183

1. conciliation
   firms & employees meet to discuss differences in presence of 3rd party eg. industrial tribunal who attempts bring parties to an agreement
   * industria tribunal tries help parties reach mutual agreement
   * doesnt impose resolution on parties but once parties reach agreement, may undertake proceedings w/ tribunal to formally implement their sides of agreement
2. arbitration industrial tribunal hands down legally binding ruling to firms & employees
   * tribunal makes a ruling resolving a dispute, legally binding on parties
   * after trobunal gave both parties opp to put forward arguments
   * conciliation unsuccessful, arbitration can end dispute by resolving it & requiring empyoees to return to work

Question 184

how has AUS shifted from resolving industrial disputes

Answer 184

mainly compulsory arbitration –> system where arbitration rare circumstances
* most times employers & ees take responsibility for resolving disputes

Question 185

under _ FWC only intervenes to resolve disputes in 3 circumstances:

Answer 185

FWAct
compulsory dispute settlement terms
* FWAct requires all awards & EAs must include term explaining process parties will adopt if have dispute relating to agreement
* if parties cant resolve dispute betw themselves, refer to 3rd party org that can assit resolving (FWC, non gvt org offers dispute resolution services)

2. bargaining in good faith
   * to reform conduct of negotiations
   * obliges emplyoers & ees to adhere to provisions when bargaining
   * 6 good faith obligations: participate in all meetings, disclose relevant info, genuinely consider all proposals, refrain from conduct undermining collective gargaining
   * if not, FWC can make legally binding orders but powers rarely used (<100 yrly)
   * rare but FWC can arbitrate agreement, high threshold
   * aim of bargaining rules to pressure parties to be constructive & reach agreement than adopt trad approach to disputes based on conflict w/ emplyoers
3. resolve industrial action
   * IA permitted when enterprise bargaining
   * FWC only able to step in to suspend/terminate IA if certain circumstances eg. threat of sig harm to eco/pop or IA for long POT & damaging bargaining parties

Question 186

what is 1 way to measure the effectiveness of industrial relations system & its dispute resolution processes?

Answer 186

lvl disputes & strikes
* AUS very low lvl dasys lost in disputes & strikes (industrial disputes) since early 2000s
* fall reflects way employer/ee relations changed recent decades w/ ^ competitive pressures, restructuring induustries, lower lvls union membership
* less ocnflict & stronger focus on employers & ees (often represented by unions) working together & resolving disputes themselves through cooperative processes
* since 1990s right to strike curtailed by laws mostly limit right to industrial action when empoyers & emplyoees engaged in formal bargaining process
* when EA in place (just 3+ yrs) employees only permitted to strike in very limited circumstances
* industrial disputes play positive role reducing power imbalances betw employers & eecs –> efficiency gains lt

Question 187

WHAT DOES aus’ INDUSTRIAL relations system historically shifting in recent decades from highly centralised wage determination system for most 1900s to system wages mostly determined through ea AT WORKPLACE Lvl reflect?

Answer 187

shti from using non market forces to greater reliance on market forces to determine wage outcomes

Question 188

what is a centralised LM?

Answer 188

wages & other LM outcomes primarily determined by gvt/gvt appointed tribunal eg. FWC

Question 189

what is a decentralised LM?

Answer 189

determine wage outcomes at enterprise/workplace lvl w/ more limited fole for industrial tribunals
* market forces supply & demand for labour & ind firm’s capacity to pay greater role determining wage increases –> more flexibility, wage lvls can change betw diff firms & industries

Question 190

aus early 20th centry wage determination system

Answer 190

centralised
* differed from most nbations –> storng cultural ethic of fairness & egalitarian values, believe centralised system for fairer society where workers paid same rate pay for doing same work
* influence of union movement most workers belonged to union
* at national lvl, industrial tribunal 1904- 1956 as Cwlth Court of Conciliation & Arbitration now FWC & similar tribunals existed at state lvl
* gvts beleived allowing market set wage lvls –> some workers underpaid & expolited
* system of tribunals deliver fairer, consistent outcomes through formal process where representatives of employers & unions argued for/against wage ^/change working conditions

Question 191

what happened to the centralised industrial system early 1990s?

Answer 191

no longer appropriate for needs of modern eco
* greater flexibility needed so wages could ^ faster in more eff sectors to attract more labour & wage ^s needed closely tied to productivity growth so emplyoees incentive to improve skills & work practices
* 1991 AUS shifted to LM wages mostly set through EA while highly centralsied award system only safety net of min wages & conditions

Question 192

efficient allocation of resources (argument for decentralisation)

Answer 192

firms more efficient can afford pay more –> attract higher skilled employees
* centralisation can slow down pace of structural change
( if same wage increase across all industries, wages in 1 industry less likely change sig compared w/ wages in another –> more diff for more profitable & growing industries to attract highly skilled labour from less profitable, declining industries –> slow down structural change in eco)

Question 193

decentralisation promoting productivity (for)

Answer 193

incentive for employees to work more efficienctly bc rewarded directly for productivity improvements w/ arrangements at workpalce lvl
* under centralised WD system, emps in ind workplaces not enough incentive for productivity improvements if guaranteed uniform wage ^ regardless improve skills/adopt ore eff work practices
* higher productivity –> reducei nflationary pressures

Question 194

decentralisation keeps u/e at lower rate (For)

Answer 194

wage flexibility –> help LM adjust when eco affected by neg shocks –> u/e lower rate
* if recession –> reduce AD for g&s –> decrease demand for labour –> flexible LM allow wages fall while keeping ppl in jobs –> minimise job losses/reduce of corp profits during downturn

Question 195

greater inequality (against decentralisation)

Answer 195

through ^ wage dispersion
* workers doing same job in diff industries/firms receive diff rates of pay & working conditions –> employers in industry/firm w/ unions little power less likely to achieve wage ^ regardless ofp roductivity bc lack bargaining power
* wage ^s can reflect bargaining power of employees than productivity improvements bc low-skileld workers easier to replace & less able demand apy rises from employers

Question 196

(against decentralisation) outcomes reflect imbalances in bargaining power

Answer 196

decentralised LM can produce outcomes that reflect imbalances in bargaining power betw employers & ees
* historically concerned abt capacity of powerful unions to bargain colelctively for large ^s –> wage-push inflation
* recently concerned abt lack of bargaining power among workers –> wage outcomes so low contr to weaker HH consumption & slower eco grwoth over last decade

Question 197

more diff to enforce wage entitlments (against decentralisation)

Answer 197

recent yrs AUS ^ problems w/ enforcing wages due to ^ fragmented nature of workplace relations
* powers of FW Ombudsman expanded & max penalties for employers increased
* legal action by FWO against major corps pressure firms w/ large no.s casual staff to conduct audits of pay systems –> reveal widespread underpayments

Question 198

centralisation is additional policy tool gvt can use to achieve eco objs (against decentralisation)

Answer 198

eg. lower inflation & reduce u/e
* can restrain wages growth to avoid cost-push inflationm/trade-off a tax cut for lower wage increases
* mroe centralsied forms collective bargaining & wage determination advs for needs of LMs
* centralised systems able reach leager nos. employees adapting to change eg. retraining, adopting new tech, improving work practices & protecting rights of all employees
* OECD argues need acheive fairness & flexibility but support for centralised collective bargaining reflects shifted views recent yrs

Question 199

besides regulating industrial relations system, gvts also finfluence labour market otucoems through their policies relating to ..

Answer 199

• education & training
• apprenticeships
• social welfare
• employment services
  to ^ workforce participation, improve workforce productivity, prepare workers for future changes in LM
• LM policies use range policy instruments to improve skills & ^ participation eg. fund employees to obtain training, subsidise employers for staff training, wage subsidies to encourage employers hire certain workers eg. apprentice & fund employment agencies to place u/e into jobs

Question 200

gvts shaping education & training

Answer 200

pre-school & school edu to vocational edu & training, uni & postgraduate research programs
* most successful edu system provides students range of skills more productive & able adjust to changing eco conditions
* eco will be productive & grow faster if has higher quality, more responsive edu & training system

Question 201

past decade gvts attempt to improve edu & training (check textbook)

Answer 201

at post-secdonary lvl, gvt plans deregulate unis & allow higher fees but havent cause opposition in Senate
* priority of edu & training policies to address large mismatch in LM betw skills demanded by fast changing job market & capacities of workers, most who finished their formal edu/training decades before
* sig mismatches in LM & w/o major changes to training systems, many employees nto equipped for changing demands of workplace

Question 202

new edu & training programs & reforms introduced during recent years to improve workforce skills, ^ job grwoth & raise productivity:

Answer 202

check textbook

Question 203

how gvt involved in LM through LM programs

Answer 203

deliver LM assistance programs to improve ppl’s readiness for LM & ^participation & productivity
* deal w/ ind circumstances may make harder to find suitable work (disabled, mental illness, language barries, long term u/e)
* integrated w/ (welfare) payments so inds receive continued income support to make efforts to find paid work

Question 204

Centrelink

Answer 204

national agency oversees inds access to incoem support & interaction w/ LM programs

Question 205

how do gvts provide employment services

Answer 205

match ppl to jobs & give adequate training
* through orgs contacted via network of employment services agencies funded by gvt
* recent years known as jobactive –> New Employment Services Model July 2022 as services framework focus more digital engagement w/ jobseekers & employers
* under jobactive ,agencies paid to place unemployed into jobs, more if emp stays, receive add funding for fidnign permanent work for inds LT u/ed

Question 206

measures recent years to ^ workforce participation (check textbook)

Answer 206

major LT goal of LM policies ^ & sustain workforce participation
* Treasury predicts LT decline workforce participation due to ageing population

Question 207

AUS’ LM has a hybrid system of

Answer 207

wage determination w/ emphasis on market forces through enterprise bargaining while retaining some role for non-market forces eg. LM institutions like DWC

Question 208

how has shifting to a decentralised industrial relations system contributed to AUS’ recent eco outcomes?

Answer 208

under enterprise bargaining, AUS sustained moderate wage increases, low inflation, relatively strong eco grwoth
1. Wages growth & inflation
* control wage grwoth at lvl doesnt contribute to cost-push inflation* IR policy obj
* flexibility of decentralsied system allow larger wage rises in areas where storng wage pressures exist w/o spilling over to wage ^s across board
* aus falling lvls u/e 2010s Wage Price Index record very low rates of wag erises
* wage outcomes fallen so far that RB Governor advocate stes to ^ wage growth to ^ spending & strengthen eco grwoth
* departure from previous decades where eco policies were to constrain wage growth

2. work practices & productivity
   * dereg of LM since 90s major changes to AUS work practices
   * since wage negotiatiosn based on conditions of ind workplaces, encourage employers & ees to trade off productivity improvements for wage increases
   * AUS best sustained productivity growth perf during 90s as EAs elimianted outdates work practices
   * one-off gains from reforms & since productivity growth slower
   * solutions –> improve training pathways, encourage tech, make LM transitions easier for employees
3. unemployment
   * reforms to industrial relations system –> AUS workplaces greater flexibility to adjust to variations in BC
   * overall, AUS successful combining lower u/e w/ rising wages & productivity since early 90s
4. income inequality
   * decentralised wage determination –> ^ degree of wage dispersion (widen gap betw higher & lower income earners)
   * workers w/ greater skills & belong to stronger unions receive larger wage increases under EAs while lesser skills & weaker bargaining positions –> smaller safety net wage adjustments
   * past 3 decades enterprise bargainins –> widen income inequality but safety net of awards & min wage increases modestly increased real wages for lowest income earners

Question 209

debate how eco should set wages & conditions for workers

Answer 209

• diff role of market forces & non market forces in AUS’ wage determination system
• if wage & work conditions issues left to employers to negotiate w/ employees (market forces)
• AUS gvts past believed employers possessed unequal bargaining power over ind employees –> non market institutions eg. industrial tribunals to ensure outcomes fair to emps
• AUS among 1st nations world to recognise min entitlements for emplyoees eg. right to min wage high enough to support decent SOL for family
• process determining wages, work conditions & work practices msot important aspects of eco policy bc wide impacts on eco & ppl’s lives

Question 210

whats the overall aim of macroeco policy aim - hwo to achieve this?

Answer 210

achieve max sustainable rate of eco growth
* AUS’ LT potential growth rate recent years revised down
* when spare capcity in eco, can sustain higher growth rate S-MT esp recovering from recession
* achieve by balancing objs of stronger growth & lower u/e against objs of keeping inflation within target range & avoid unsustainable blowout in CAD

Question 211

goal of microeco policies

Answer 211

improve productivity & competitiveness to achieve higher lvl eco grwoth LT (list sustainable rate of eco growth)

Question 212

Porpserity Index

Answer 212

published annually by Legatum Institute
* ranks c’s on eco growth, eud, health, governance, human rights, enviro standards

Question 213

what does AUS’ eco outcomes indicate?

Answer 213

improved effectiveness of eco policies since 90s
* gvts managed conflicts betw eco policies better, not forced to sacrifice 1 macroeco obj for another
* helped by reducing volatility in eco, gvts balnce goals for growth, inflation, u/e, external balance
* partially bc favourable external conditions than most ecos eg. AUS’ rich endowment of natural resources –> take adv of historic rise in global commodity prices & rapid industrialisation of China
* AUS’ TOT rose 200s almsot 2x avg during last quarter of century
* despite fluctuations over past decade, AUS’ TOT above LT avg
* AUS benefited from strong pop growth (one of highest OECD rates) w/ migration program focus skilled migrants who contribute directly to ^ eco’s productive capacity
* but eco management in 70s & 80s characterised by constant tensions whether priority to maintain low inflation/reduce lvl u/e which remaind high during 2 decades

Question 214

aus policy response outcomes for growth

Answer 214

• sustained eco grwoth 1991-2019 bc eco avoided major fluctuations in BC eg. boom in growth triggers surge inflation –> curbed by contractionary policies eg. high IRs may trigger recession
• growth was stable bc relativley high pop growth, resilient TOT for export rev & high lvls workforce participation
• gradual decline lvl grwoth is sustainable
• 1990s to 2000s gvts aimed sustainable growth rate 3-4% , goal pursh towards higher end of range
• AUS’ slower growht 2.4% 2010s below LT potential
• AUS LT trend weak productivity frwoth & absence of major new sources of growth/investment after 2 decades when resources sector drove eco growth

Question 215

aus policy outcomes for inflation

Answer 215

textbook this
* clear & transparent framework for MP, lower tariff barriers, ^ competition across many industry sectors, price reductions from new techs & cheaper imports, moderate wage outcomdes, period of strong productivity growth in 90s
* mining boom brought cost pressures & capacity constraints but AUS successful controlling inflationary pressures

Question 216

Washington consensus policies (box)

Answer 216

many decades dominated eco reform debate in adv ecos for reduced gvt intervention in markets, dereg, trade liberalisation, privatisation of publci assets
* polieis advocated by bus lobby groups, international bodies (IMF, World Bank but championed most by OECD for leading economists of adv ecos)
* OECD never advocated entirely ‘laissez-faire’ approach of gvts not intervening in free markets, paid limited attention to questions of inequality & focused to ^ eco grwoth

past decade dramatically changed bc OECD argues its past approach failed, world seeing weak growth & ^inequ in decade since GFC + globalisation & growing resistance to open trade in many countries

recent yrs OECD urged major paradigm shift in eco policy around world that member countries focus on inclusive growth for income & wealth distribution, eco opp, growth
* new appraoch doesnt abandon historic commitment to market based mechanisms but requires mroe active LT role for gvt addressing ineqs now growing threat to stability & Social cohesion of many c’s

Question 217

(box) among otherp olicies, OECD’S Inclusive Growth Initiative urges gvts to:

Answer 217

• remove distortions in tax systems contributing to inequality (capital gains tax concession, loopholes exploited by TNCs, excluding housing & inherited wealth from tax systems)
• invest in early childhood development programs
• suport young firms & SMEs by reducing barriers to entry to markets, encourage R&D, marke easier to obtain finance

Question 218

how has AUS reduced its large external balances?

Answer 218

favourable external conditions
* structural improvement in CA & net foriegn liabilities from 3 major developmetns
1. China’s emergence as AUS’ largest export market
2 .remarkable turnaround in AUS’ TOT & long epriod of record low glboal IRs
* AUS still has high lvl foreign liabilities, vulnerable to adverse external shocks esp reliance on small no. commodity exports & dependence on China as major export market
* AUS’ external imbalances still less concern than previous decades bc msot external debt denominated in AUD –> reduce ecos’ risk exposure

Question 219

While AUS managed S & MT risks, now AUS greatest LT vulnerability from impacts of

Answer 219

climate change
* ecological vulnrability bc natural disasters recent yrs (prolonged drought, water shorgages, bushfires)
* agri, tourism, regional ecos most vulnerable
* poor record preserving biodiversity, protecting natural enviros, managing scarce water resources, overusing agri land
* slower progress than other ecos reducing carbon emissions as one of world’ highest emitters of GG per capita w/ heavy reliance on carbon-intensive fossil fuels for energy generation & export income
* political disagreements over eco policy response to climate change & frequent policy changes –> ongoing policy uncertainty

Question 220

AUS’ concern despite unprecedentedp eriod of sustained eco grwoth & falling u/e, increased …

Answer 220

LT inequality in distribution of income & wealth
* shrinkage of middle-lvl jobs alongside growth in earnigs at tope and & expansion of lower paid service indstry jobs like other adv ecos
* rising poperty widens gap in wealth inequality
* intensified by decline in wage growth recent yrs, below avg for OECD ecos since 2015 but long period highest lvls real wage growth world
* w/ slow wage growth & rising inequality, AUS left behind by globalisation & tech change
* groups disproportionately affected by entrenched social disadv like ATSI & from LM

Question 221

time lags (limitations of eco policy)

Answer 221

2 types limit effectiveness of eco policy
* implementation time lags when takes time for gvt to make changes/intro new eco policies
* impact time lags when takes time for new policy/ policy change to impact eco
* change in MP implemented quick (RBA meets 1st Tue each month, outcome announced to FM 2:30p mday of meeting) even in extreme situations RBA Governor given discretion to change IRs if conditions change during POF betw meetings –> annoucne decisions –> immediate effect on CR

Question 222

fiscal policy implementation time lag

Answer 222

• major changes to spending/revenue collection occur annual w/ Budget but gvt can announce changes betw budgets
• most spending & revenue changes need complex process budget committee meetings & scrutinised by several gvt departments before approval
• developing yr’s Budget starts early year, & finalised May, several months for budget legislation to pass through Parliament + political constraints stop gvts implementing budget proposals

Question 223

time lags in microeco policies

Answer 223

impact time lag bc planning & policymaking
* long implementation time if need secure state & fed gvt support (all 6 state 2 territory w/ diff interests of each state)

Question 224

policies can take tme to achieve aims due to differing time lags in their _

Answer 224

impacts
* some effect ST eg. logn time to implement FP change but quick effect on eco activity
* tax reducation imm affect income lvls/prices & ^gvt spending quickly affect eco conditions
* impacts of ST changes FP stance seen within year
* hence more important during downturn bc shorter time lag impacting eco msot eff policy to achieve immediate boost AD

Question 225

MP time lag

Answer 225

6-18 months to impact eco bc takes time for changes in lvl IRs through changes in borrowing & savings behaviour of consumers & bus
* RBA needs to adjust MP pre-emptively based on future lvl inflation & other eco conditions expects in 12-18 months time to address impact lag

Question 226

microeco policies time lag

Answer 226

only be assessed after several years even decades for full picture of effectiveness
* benefits of structural change can take several years to become apprant as resources reallocated from one sector to another & full effects of changes flow through to costs, bus profits, export growth, productivity
* can be diff to accurately measure impact of microeco policies since several may be implemented same time, hard to distinguish impacts of 1 reform from another

Question 227

political constraints of eco policies (limitation)

Answer 227

eco policy decisions made in democratic context
* gvts in AUS elected to represent public w/ election commitments responsible for
* once elected, gvts face diff trade-offs making decisions consistent w/ commitments & comaptible w/ eco conditions (which we be passed through Parliament
* gvts must be sensitive to public opinion when develop & implementing eco polcieis
* consider if supported by members of their political party, stakeholders, if opposed by groups
* gvts typically implement LT less popular policies in 1-3 yrs
* year before election, gvts can be reluctant to unpopular decisions, often pressured to implement policies popular w/ the electorate but not have LT eco benefits

Question 228

what are the contraints on implementing unpopular policies for gvt & eco management

Answer 228

largest barrier to eco reform in AUS past decade
* less common for gvts to implement unpopular reforms to acheive LT eco goalswhat can gvts do to minimise political constraints?

Question 229

what can gvts do to minimise pol

Question 230

itical constraints?

Answer 230

delegate authority for some decisions to independent gvt agencies
* eg. RBA makes IR decisions & FWC decides increases to national min wage & award wages
* independent authorities approve pricing decisions in regulated sectors eg. electricity prices
* gvt responsible for making decisions wouldve been under political pressure to make ST popular decisions may not be consistent w/ LT eco objs

Question 231

what is another political constraint on gvt?

Answer 231

role of AUS Parliament especially the Senate
* many eco policies can only implemented through legislation eg. budget measures, changes to indust relaitions system, changes to bus laws
* under AUS parliamentary system, clegislation must receive majority votes in HoR (lower hosue) & Senate (Upper HOUSE)
* HSITORICALLY uncommon for gvt majority in Senate –> have to make compromises to win support of other senators from Opposition/minor parties to pass proposed legislation
* recent yrs elections sotly led to very small majorities in HoR & neither party winning majority in Senate

Question 232

when fed & states cant agree on a polciy compromise what can do fed do?

Answer 232

try impoes changes on the states –> lengthy constituional challenges in the High Court
* High Court generally favoured expansive interpretation of fed power over states in recent decades but states still retain sig powers under AUS Constitution

Question 233

special interest groups role in gvt policymaking

Answer 233

political parties often hasve strong relationships w/ supporters
* bus groups have sig influence on policies of both major political parties (esp Coalition parties) while unions close relation w/ Labor Party
* large bus often employ lobbyists to influence gvt policies bc potential financial impacts of policy decisions on their activities

Question 234

global influences limiting eco policies

Answer 234

bc AUS eco mroe integrated w/ global eco, global factors greater constraint on eco policy
* conditions in global eco have immediate impact on AUS
* ecos face immediate consequences for eco mismanagement mainly through FM reactions
* gvts can voluntarily accept constraints on own eco polciy to win concessions from other nations eg. through trade agreements
* global enviro ERs & ecos vulnerable to sudden shifts in financial flows –> gvts place high priority on maintaining confidence of international investors & GFMS esp recent yrs GFMS enormous volatility

Question 235

foreign exchange markets supporting policies promoting stronger trade & financial linkages to global eco to support eco & financial stability. what are these policies?

Answer 235

• reduce gvt spending & budget deficits
• low rates of corporate & capital gains taxes
• reduced trade barriers & openness to foreign investment
• dereg financial sector (eg. remove restrictions on international financial flows)
• dereg most areas of eco to ^ comp
• privatisation of GBEs
• dereg LMs & target social welfare
• trade agreements give overseas bus power to sue national gvts for policy changes that undermine profitability of their investments

Question 236

how do polciies supported by GFMs affect eco policies

Answer 236

creates difficult enviro for gvts to pursue policies that differ from accepted formula for ‘good’ eco management
* smot adv ecos adopted similar policy mix recent yrs
* GFMs restrict policy options for gvts (but some say FMs helpful discpline gvts otherwise make bad policy decisions)
* gvt adopting alt policies can lose foreign investor confidence & fall in currency

Question 237

how can Global financial flows & overseas IRs directly influence conduct of MP?

Answer 237

if IRs rising other c’s, c’s rate of return relatively less attractive for overseas investors –> outflow of funds & depreciate currency –> add inflation & undermine confidence
* gvts prevent by adjusting IRs to responding to changes in other ecos
* market IRs in AUS also directly affected by changes in overseas IRs bc AUS banks rely on borrowing from overseas to fund loan portfolios

Question 238

how can the international BC restrict scope of poliymaking within individual c’s?

Answer 238

diff for C to sig ^ its lvl of eco grwoth if global eco is in eco downturn
* faster domestic growth –> ^ imports, weaken export growth –> sig ^ CAD –> force gvt slow down eco via tighter F&MP –> risk more severe recession
* why industrialised c’s keep eco growth w/ international & regional BC

Question 239

hwo do international orgs have direct influence on domestic macroeco & microeco polcieis?

Answer 239

• WTO influence ind trade policies bc its enforcement powers, can place trade sanctions on ecos that dont comply w/ international TAs –> sig consequences for c’s trade policy
• forced AUS GVT to change export assistance policies/ AUS’ strict quarantine regulations eg. AUS forced to abandon ban fresh salmon imports from Canada
• other international forums influence eco policymaking eg. international pressure palced on AUS for CC commitments UN CC Conference

Question 240

how do decisions of the G7 nations & G20 GROUP have sig infleucne over global eco & domestic macroeco policies of small c’s? (eg. AUS)

Answer 240

growing integration of ecos through globalisation –> limited scope for small c’s to adopt diff macroeco policy stance to those adopted by major industrialised ecos

Question 241

how to examine effectiveness of eco policies

Answer 241

look at ind policies & determine whether/not effective achieving goals compared w/ other policies
* challenging bc diff to isolate specific effects of 1 policy compared w/ another
1. * identify policy’s og obj
2. * whether gvt actually implemented policy that originally set out to implement (polcieis can be changed before fully implemented eg. gvt voted out office/change priorities) & sometimes have eco polcieis unable to implement bc political constraints
3. review eco outcomes & how closely they relate to policy objs
* sometimes diff to determien if policy successful bc gvts dont always set specific targets/obsk when implement policy eg. eco grwoth & inflation but not u/e other than general aim reducing rate (w/o specific goals, more diff to measure policy effectiveness)
4. ask whether other factors sig affected eco outcome
* gvt eco policy always at mercy of other developments & often 1 of many factors determining eco outcomes
* ceteris paribus: if nothing else changes
* other things change so diff
5. whether polciy had other consequences / side effects
* esp important bc if signs that policy reasonably effective achieving main aim
* was anotehr part of eco badly affected by policy?
* trade off betw policy objs bc conflicting objs of eco management

Question 242

factors that may affect eco outcomes

Answer 242

• changes in global eco conditions/eco of major trading partner
• overseas IR movements
• sharp movement in value of currency
• developments may affect future expectations eg. crisis in industry/region of world
• changes in commodity prices eg. fall oil prices
• seasonal factors (infectious outbreaks, natural disasters)
• industrial unrest eg. major dispute betw union & major company
• new techs/shift consuemr preferences
• shift in sentiment relating to the eco eg. result of downward adjustment in credit ratings

Question 243

examples of conflicting objs of eco management

Answer 243

ST trade off betw reducing inflation & u/e
* inflation exceed RBA’S target band –> raise IRs to reduce –> ST contraction in eco activity –> ^ cyclical u/e
* gvts may avoid action agaisnt inflation using contractionary MP esp during election yr –> why RBA operates independently from gvt to prevent political considerations from constraining MP achieving price stability

COVID pandemic forced state & fed gvts in AUS to make diff trade-offs
* balance public health risks w/ eco consequences of lockdowns & restrictions on activity & travel
* closign AUS’ international & state borders cost eco billions but gvt assessed consequences of not doing would be worse

after GFC many overseas gvts esp Europe made diff trade offs betw reducing budget deficit to address FM concerns abt public debt lvls & risk contractionary FP put eco back in recession
* AUS fortunate avoid trade off bc had lower deficits & debt lvls than adv ecos

historically accepted trade off betw achieving higher lvls eco grwoth & ^inequality in distr of income & wealth
* esp ‘boom’ periods eg. resources in AUS/C eco rapid grwoth last 3 decades) generate income & wealth distributed very unevenly
* traditionally though c’s must accept high lvls inequality for faster grwoth but OECD and IMF orgs emphasise need for inclusive appraoch to eco grwoth bc neg eco & social effects of ^ inequality
* polcieis t promote greater income equality boost eco grwoth bc measures to ^ incomes of lower income earners –> boot consumption –. growth
* no longer clear trade off betw ^ equality &^ growth

large LT reductions in AUS carbon emissions necessary if AUS make contribution to global CC response
* area of policy diff for gvts for over decade bc many bc several occassions gvts changed policy plans & policy proposals rejected in Parliament
* debate how policies putting price on carbon emissions can affect diff parts of eco esp carbon intensive industries
* gvts forced to make trade offs between LT goal reducing GG emissions & ST impact of carbon price (higher energy prices, slower eco growth, job losses)

Question 244

eco management in AUS past present future ( textbook)

Answer 244

• mostly effective achieving S-MT goals since early 90s
• growth wes sustained alongisde low inflation & relatively low u/e rates
• MP worked well since early 90s managing growth cycle & achieving price stability: inflation target largely achieved & AUS maintained stable eco growth (textbook)
• effectiveness of MP relies on policy mix
• main limitation of MP: rarely effective when used on own, needs to be supported by similar FP settings. not effective when working opp direction to FP eg. 2008
• past 3 decades show MP more effective implementing contractionary macroeco policy than expansionray policy
• major eco downturn/extended period subpar growth, low IRs not enough stimulate eco activity & lower u/e
• to support eco grwoth after reducing IRs to just above 0 responding to covid recession 2020, RBA unconventional MP measures eg. purchase gvt debt “asset purchase programs’ from private sector to provide lwo cost credit to banking sector & introduced a yield target for gvt bonds
• using conventionary MP can be ineff in already low IR & inflation enviroonestly this stuff is for ext response