U4 AOS2 Flashcards
Aggregate Supply Policies
government initiatives designed to reduce costs of production and/or improve supply side conditions for businesses so productive capacity and living standards of Australia are improved
AS policies can target specific areas of the economy such as improving equity, the environment or welfare reforms
Technical Efficiency
- productivity is at a maximum and average costs are at a minimum
Allocative efficiency
- How well resources are being allocated in an economy. Where resources are allocated in such a way the living standards and welfare are maximised
- AS policies help to achieve allocative efficiency remove barriers which might otherwise prevent resources from being allocated to particular parts of the economy
- Example: high tariffs, people are discouraged from buying particular imported goods, but the removal of tariffs will remove the barrier and encourage a market which is free to allocate resource in the way that it sees best.
Dynamic Efficiency
- How quickly an economy can reallocate resources to achieve allocative efficiency
Intertemporal Efficiency
- How well resources are allocated over time, ensuring balance between current and future use
- Intertemporal efficiency might at time contradict the aims of other types of efficiency.
AS policies to achieve goals and living standards
increasing AS the economy will experience both economic growth and lower average prices
increased likelihood of achieving the goals of strong and sustainable growth and price stability
With higher AD and GDP, we could expect to see more demand for labour, reducing the rate of unemployment
AS policies will improve living standards in Australia. Incomes should increase and we should have a greater capacity to access goods and services.
How budgetary policy affects AS and domestic macroeconomic goals - Training and Education
Training and Education
Investment in training and education courses will improve the skills, knowledge and capacity of the labour force.
Increasing labour productivity and boosts productive capacity.
Better training helps with dynamic efficiency as labour markets are better able to adapt to technological and structural changes.
○ Australian Apprenticeships Incentive Scheme
○ Skills and Training Boost.
A better skilled labour force will result in fewer skills shortages and capacity constraints, increasing the productive capacity of the economy.
There will be higher productivity growth and reduced average costs of production, leading to price stability.
Low inflation and increased economic growth also leads to healthy demand for labour, helping us to achieve the goal of full employment.
How budgetary policy affects AS and domestic macroeconomic goals - R&D
Research and development provides for the innovation required to better meet the needs of consumers and remain competitive in rapidly changing global market
may include investing time, money and resources to discover better methods of production or improved efficiencies in business operations, including new technologies.
Can be a risk for some business because there is no guarantee of improvements and there is a risk that others could copy or piggyback of their research. So government can provide incentives to encourage R&D
Benefits of R&D will spill over to positively impact on third parties – positives externalities.
- $1.3b Medical Research Future Fund
- Research and Development Tax Incentive
How budgetary policy affects AS and domestic macroeconomic goals - Investment in Infrastructure
Infrastructure is the basic physical structures and capital resources required to support economic activity. This includes roads, rails, ports, hospitals etc.
Government spending on infrastructure reduces cost of production for businesses by reducing bottlenecks and congestion that prevent increases in output, improves our international competitiveness and grows our productive capacity.
Recent budgets have seen:
• $7.1b to regions of national importance
• $120 billion 10 Year infrastructure investment pipleine
• Road and rail upgrades
• Freight and logistics upgrades
How budgetary policy affects AS and domestic macroeconomic goals - Subsidies
Historically the government was assisting business and industry with subsidies and tariffs. Though this often resulted in inefficiency and higher prices.
There has been a move away from providing specific industry to support and more towards the spill-over benefits are more wide reaching.
Climate change, renewable energy, combating drought, child care subsidies, wage subsidies (such as the incentive to employ older Australians) are areas where subsides have been used more productively.
Tax Reform
Tax incentives can encourage entrepreneurial behaviour, innovation and investment to improve productive capacity as well as provide motivation to increase effort and productivity
Tax concessions (EG: R&D tax concession)
Tax cuts
LMITO
Welfare Reform
The welfare system in Australia is designed to help those individuals and families in need of financial support
Aged pension - (over 65)
Disability support pension - (long term disability)
JobSeeker - (unemployment benefits over 22)
Child care subsidies
Immigration policy
Australia’s immigration policy is a supply-side approach to managing the number and composition of people migrating to Australia from overseas.
Recently, Australia has been trying to attract young, skilled people who are likely to contribute to our labour force and the economy.
AS and Goal of Low inflation
Productivity is increased and costs are cut, prices will decrease
Causes a reduction in cost inflation and therefore assists in the achievement of the domestic macroeconomic goal of low inflation
Lowered inflation caused by these AS policies will lead to an increase in purchasing power, which increases the material living standards of people in the economy
AS and Goal of Full employment
Long term efficiency is increased through aggregate supply policies, firms are less likely to close and likewise more likely to expand their business or set up new ones
increasing employment, helping to achieve the macroeconomic goal of full employment in the long term.
Increased employment means more people are receiving a factor income, which increases their access to material goods and services, increasing material living standards.
