Unit 4 AOS 2

Question 1

What are capacity constraints?

Answer 1

Factors that prevent an economy from producing more goods and services such as skill shortages and infrastructure bottlenecks

Question 2

What does the ‘nature’ of policies mean?

Answer 2

What do the policies consist of?

Question 2

What is productive capacity?

Answer 2

It is the point at which production is occurring at the maximum level possible in an economy

Question 2

What is production?

Answer 2

The process of converting resources and inputs into goods and services or the total volume of goods and services produced over time

Question 3

What is productivity?

Answer 3

The volume of output that is produced from a given number of inputs

Question 4

What does the ‘operation’ of policies mean?

Answer 4

How do they work in order to impact on aggregate supply?

Question 5

What does the ‘aims’ of policies mean?

Answer 5

What is the impact the gov is trying to achieve with the implementation of AS policies?

Question 6

What is aggregate supply?

Answer 6

Represents the total volume of goods and services that all suppliers have produced and supplied over a period of time and it is influenced by the willingness and ability of producers to produce

Question 7

What is the ‘nature’ of aggregate supply policies?

Answer 7

They include a wide range of government strategies that seek to grow the productive capacity or potential of the economy, especially in the long term, by increasing the willingness and ability of suppliers of goods and services to produce

Question 8

What are the basic aims of aggregate supply policies?

Answer 8

They aim to improve living standards by improving supply conditions and helping to simultaneously achieve the goals of strong and sustainable growth, full employment and low inflation

Question 9

What measures may aggregate supply policies include?

Answer 9

Increase the efficiency in our use of resources so that the output of goods and services grows faster than the rise in inputs
Increase the quantity or volume of productive resources available
Increase incentives or the motivation of individuals and businesses to expand production and capacity
Increase the level of competition in markets so economic agents are more responsive and effective
Reduce market failures
Removing capacity constraints

Question 10

What are the overall aims of aggregate supply policies?

Answer 10

Push AS curve to the right
Boost Aus productive capacity
Enable higher output at lower prices and higher employment levels
Lower inflation
Increasing real GDP, without adding to inflationary pressures in an effort to boost living standards
Lower production costs to enable firms to reduce prices for any given level of output, without sacrificing profits
Allows for greater national output

Question 11

What is the relationship between AS and productive efficiency?

Answer 11

Should result in an increase in the productive capacity as there will be an increase in outputs from a given level of inputs, increasing AS and shifting the curve to the right

Question 12

What is the relationship between AS and allocative efficiency?

Answer 12

Any improvements to productive capacity or AS that have the potential to increase material living standards as measured by GDP per capita will therefore help to achieve allocative efficiency

Question 13

What is the relationship between AS and dynamic efficiency?

Answer 13

Should result in an increase in productive caoacity and help generate/maintain an increase in AS via increase in innovation, creativity etc

Question 14

What is the relationship between AS and inter-temporal efficiency?

Answer 14

In the short term could actually reduce the productive capacity of the economy however in the long term it will boost productive capacity

Question 15

What is the relationship between AS and Strong and Sustainable Growth?

Answer 15

By boosting productive capacity, AS policies will increase the productive limit enabling a higher rate of economic growth coupled with lower inflation rates and achievement of the goal

Question 16

What is the relationship between AS and Low Inflation?

Answer 16

By boosting productivity and reducing costs of production, there will be lower cost inflationary pressures, resulting in the achievement of the goal

Question 17

What is the relationship between AS and Full Employment?

Answer 17

Positive supply side conditions lead to increased business confidence and a greater willingness for businesses to invest, expand and produce and this leads to more jobs being created, achieving the goal of full employment

Question 18

What is the relationship between AS and International Competitiveness?

Answer 18

AS policies seek to increase efficiency, reduce production costs and maintain inflation, all increasing Aus international competitiveness

Question 19

What is the relationship between AS and Living Standards?

Answer 19

The successful implementation of AS policies should help to boost both material and non-material living standards as there there will be a greater volume of goods and services and there will be a decrease in unemployment (M) and there will be reduced strain on resources, improved working conditions and mental health (nM)

Question 20

What is infrastructure?

Answer 20

It is the key phyiscal r rganisiational structures within an economy that provide the locations and faciitites aroud which economic activity can take place

Question 21

How do infrastructure policies operate?

Answer 21

A greater volume of infrastructure combined with better quality infrastructure, will lead to an increase in productivity, efficiency, reduced production costs and an increase in productive capacity, improving producers ability to increase the volume of produciton of goods and services over a given period of time

Question 22

Examples of infrastructure policies

Answer 22

The Westgate tunnel project
The $110 billion infrastructure pipeline

Question 23

What is the impact of infrastructure investment?

Answer 23

Increases productivity, lowers production costs and boosts Aus productive capacity, increasing AS and it will lead to more sustainable rates of economic growth in the long term

Question 24

What is the relationship between infrastructure investment and low inflation?

Answer 24

Assists in the achievement of the goal because improves efficiency, reduces costs of transport etc and cost of produciton, removal of capacity constraints, improved transport and it controls cost inflationary pressures within the economy

Question 25

What is the relationship between infrastructure investment and strong and sustainable economic growth?

Answer 25

Assists in the achievement of the goal because boosts productivity, boosts efficiency, boosts long term productive capacity, removal of capacity constraints and these all lead to an increase in AS, economic activity and economic growth

Question 26

What is the relationship between infrastructure investment and full employment?

Answer 26

Assists in the achievment of the goal because there are increased levels of ouput which means businesses are likely to require more workers, reducing unemployment and it can ensble businesses to expand into new markets which means they need to employ more workers, reducing unemployment

Question 27

What is the relationship between infrastructure investment and living standards?

Answer 27

Increases material and non-material living standards through improved purchasing power via downward pressure on inflation and boosts to real income as a result of employment growth (M) and through lower unemployment which leads to improved happiness and feelings of self worth, lower crime rates and better health outcomes and it can reduce market failure and the underproduction of public goods (nM)

Question 28

What is trade liberalisation?

Answer 28

It includes any government policy initiative that is designed to promote free trade or reduce restrictions to free trade/barriers to trade

Question 29

What are the short term impacts of trade liberalisation?

Answer 29

Can lead to higher levels of unemployment in the short term as businesses are forced to restructure in order to reduce costs and boost efficiency to be able to compete with overseas businesses

Question 30

What are the long term impacts of trade liberalisation?

Answer 30

Can lead to the creation of jobs as the economy starts to grow as a result of the effects of the increase in international competitiveness and trade, and the flow on effects this has on economic growth

Question 31

Structuring a trade liberalisation response

Answer 31

Define trade liberalisation
Explain why competition increases
Explain how higher levels of competition forces local businesss to restructre inn an effort to meet these higher levels of competition, some industries may disapear and resources are reallocated towards areas in which Aus is more efficienct, maximising productive effieciency
Describe impact on AS and productive capacity of the economy
Explain the impact on gov goals

Question 32

What is the effect of trade liberalisation on international competitiveness?

Answer 32

Trade lib increases competition, which increases productivity and decreases cost of production as businesses are forced to restructure leading to increased productive capacity and increased AS, higher volume of production at lower prices will increase international competitiveness

Question 33

What is the effect of trade liberalisation on CAD?

Answer 33

Trade lib increases competition, which increases productivity and decreases cost of production leading to increased productive capacity and increased AS, this boosts international competitiveness which increases the value of credits to BoMT and Net Services, improving CAD/CAS

Question 34

What is the effect of trade liberalisation on strong and sustainable economic growth?

Answer 34

Trade lib increases competition, which increases productivity and decreases cost of production leading to increased productive capacity and increased AS, which results in higher volume of production at lower prices, as a result of increase in AS there is an increase in economic activity which increases economic growth, achieving the goal

Question 35

What is the effect of trade liberalisation on low inflation?

Answer 35

Trade lib increases competition, which increases productivity and decreases cost of production leading to increased productive capacity and increased AS, which results in higher volume of production at lower prices, as a result there is decreased cost inflation in th3e economy placing downwards pressure on inflation, achieving the goal