Unit 4 AOS 2 - AS policies Flashcards
What are capacity constraints
= factors that prevent an economy from producing inc g/s i.e skill shortages + infrastructure bottlenecks
What is production
= process of converting resources + inputs into g/s
What is productivity
= volume of output that is produced from a given number of inputs
What is productive capacity
= point @ which production is occurring @ the max lvl possible in economy
What is aggregate supply
= represents total volume of g/s produced by all suppliers over a period of time
-> influenced by ability + willingness of p’er 2 produce
What are AS policies
= include a wide range of gov.t strategies that seek 2 grow the productive capacity / potential of economy, especially in L.T, by inc willingness + ability of suppliers 2 produce
What is the aim of AS policies
= inc L.S by inc supply conditions + helping 2 simultaneously achieve the goals of SSEG, FE, LI
What is an issue surrounding AS policies
= inefficient performance in a number of sectors due 2 protectionism shielding them from competition
What is productive efficiency
= achieved when max output from given input
What is intertemporal efficiency
= how well resources are allocated over different time periods so that the L.S of future generations are x sacrificed in the pursuit of the current gen L.S
What is allocative efficiency
= most efficient allocation of resources occurs when L.S + welfare are max + it is x possible 2 further inc L.S by changing the way resources are allocated
What is the relationship b/n AS + efficient allocation of resources
Prod / Tech
- Prod/ Tech -> results in inc in productive capacity / AS as there will be an inc in outputs from given lvl of inputs shifting AS right
What is the relationship b/n AS + efficient allocation of resources
Dynamic
- should -> inc in productive capacity + help generate / maintain as inc + AS via inc in innovation, creativity
What is the relationship b/n AS + efficient allocation of resources
Inter-temporal
- in S.T could dec productive capacity of eco h/r in L.T could boost prod capacity
What is the relationship b/n AS + efficient allocation of resources
Allocative
- any improvement 2 prod capacity / AS that has potential 2 inc MLS as measured by GDP per capita will t/f help achieve allocative efficiency
How does AS policies improve SSEG
-> SSEG limited 2 speed @ which prod capacity can inc
-> dec pressure on prices = expansion in AD which will inc GDP + dec inflationary
-> environmental policies ensure sustainability
How does AS policies improve Low Inflation
-> boosting prod + dec costs of prod = dec cost inflationary pressures
-> inc prod capacity, shifting the AS curve 2 the right, dec cost inflationary pressure
How does AS policies improve Full Employment
-> AS policies focused on edu. + training = workers with appropriate skills address structural unemployment
-> +ve supply side inc bus confidence + a greater willingness 4 bus 2 invest = growth + jobs
How does AS policies improve International competitiveness
-> inc efficiency, dec prod costs t/f keeps lid on inflation
How does AS policies improve ML
-> inc volume 2 access g/s available @ lower prices
-> dec in unemployment = inc disposable income
How does AS policies improve NMLS
-> via a greater efficiency in production helping 2 dec skins on resources
-> improved working conditions
What is infrastructure
= refers 2 key physical or organisational structures with in an economy that provide the “building blocks” around which economic activity can take place
Drawbacks of infrastructure
- long lead times
- some infrastructure projects = low profits in S.T = unattractive 4 private sector
- Relative prices don’t work in infrastructure markets 4 urban + rural water, power, road, rail, transport + gas
- +ve externalities = financial rewards x received by individual investors -> underproduction, market failure + capacity restrictions = gov.t intervention required
How do AS policies operate
-> An inc volume in infrastructure combined with better quality will -> inc in productivity, efficiency, dec production costs + productive capacity - improving p’er ability 2 inc the volume of production of g/s over a given period of time
How investment in infrastructure achieves low inflation
- improved efficiency = dec per unit production costs = dec cost inflationary pressures
- dec costs due 2 fuel, maintenance + time with infrastructure on roads, rail and other types of transport infrastructure
- removal of capacity constraints / infrastructure bottlenecks dec prod costs
- improved transport = mobility of workers = high participation rate + availability of required skills
How investment in infrastructure achieves SSEG
-> Boosting productivity; efficiency; long term productive capacity
-> removal of capacity constraints / bottlenecks
-> All inc AS = inc output (GDP) = strong growth
How investment in infrastructure achieves Full Employment
-> inc lvls of output (GDP) means bus are likely 2 require more workers = dec in unemployment
-> keeping prod costs lower = inc in international comp = bus expanding into new markets + employing more staff = dec unemployment
How investment in infrastructure achieves LS
- Inc p. power via dec inflation
- boost 2 real incomes b/c inc growth
- dec unemployment = improved happiness + feelings of self worth
- investment in infrastructure can dec market failure + the underproduction of public goods
What is a quota
= restriction on volume of imports
What is a tarrif
= a tax on imports
What is a subsidy
= financial assistance
What is the aim of protectionism
= 2 protect local p’er against competition in order 2 protect local production, jobs + income
What is trade liberalisation
= includes any gov.t policy initiative designed 2 promote free trade / dec restrictions 2 free trade
What are the benefits of trade liberalisations
- Promotes tech./ efficiency
= dec trade barriers force 2 use resources in inc productive manner - Promotes dynamic efficiency
= dec trade barriers incite inc innovation + creativity 2 capitalise - Promotes allocative efficiency
= dec trade barriers promote reallocation 2 areas with legitimate c’er demand where Aus bus comparative advantage
What are the consequences of trade liberalisation
- S.T = -ve impact b/c inc unemployment b/c bus forced 2 restructure
- L.T = h/r jobs will be created b/c inc growth in economy
Effects of trade liberalisation on International Competitiveness
-> inc comp = inc prod + dec cost of prod as bus forced 2 restructure = inc prod capacity + AS = inc volume of prod @ dec prices = inc international comp
Effects of trade liberalisation on CAD
-> inc competition -> inc prod + dec cost of prod = inc prod capacity + AS = inc volume of prod @ dec prices = inc I.C = inc value of credits in BoMT + NS = inc CAS/ dec CAD
Effects of trade liberalisation on SSEG
-> inc competition -> inc prod + dec cost of prod = inc prod capacity + AS = inc volume of prod @ dec prices = expansion in AD = inc lvls of eco activity + dec cost inflationary pressures
Effects of trade liberalisation on Low Inflation
-> inc competition -> inc prod + dec cost of prod = inc prod capacity + AS = inc volume of prod @ dec prices = dec cost inflationary pressures in the economy placing dec pressures on inflation
Effects of trade liberalisation on F.E
S.T = inc structural unemployment b/c some bus can x compete -> redundancies
L.T = inc AS -> dec inflation -> inc p. power -> inc confidence -> inc consumption + I.C -> in X + dec M -> inc AD t/f inc DD4L 2 meet demand = dec cyclical unemployment
Effects of trade liberalisation on L.S
S.T = can fall 4 those who become unemployed -> dec access = dec MLS + inc financial stress = dec NMLS
L.T = can inc as inc opportunities + dec prices with inc income -> inc access = inc MLS + dec financial stress = inc NMLS
What is immigration policy
= strategic supply side approach 2 managing the number of migrants coming 2 Aus from overseas. The fed gov.t current immigration program tries 2 attract young, English speaking + suitably skilled ppl who are likely 2 make a valuable + ongoing economic contribution 2 the labour force + the Aus economy
Negative impacts of an aging population
1) inc savings rate
2) dec eco. growth
3) inc welfare previous
4) inc spending on aged care facilities + hospitals
5) dec participation rate
6) Aus’ aged > 65 projected 2 double by 2024-25
7) dec tax revenue from inc tax 4 fed budget
8) Results = larger deficit
9) Reduction in expenditure on essential services / inc in personal income tax rates or both
Immigrations impact on Aggregate Supply
- inc supply of labour t/f dec pressure on wage growth rates -> inc employment + output
- Alleviates capacity constraints + helps 2 maintain labour productivity lvl
- Further enhance productivity via intake of of young skilled professionals 2 replace the aging population + retirees
What is the impact of immigration policies on SSEG
-> inc productivity capacity by improving productivity, inc supply of labour + removing capacity constraints of skills shortages = eco. growth as suppliers are inc willing + able 2 supply in the economy @ dec prices -> expansion in demand
What is the impact of immigration policies on LI
-> whilst can cause demand inflationary pressures, focus on skilled migration -> inc productivity growth t/f dec pressure on wages -> inc labour supply + dec skill shortages -> inc prod capacity t/f dec cost inflationary pressures on inflation
What is the impact of immigration policies on FE
-> removal of capacity constraints + inc in supply of labour eases inc pressure on wages + costs = help p’er maintain output @ relatively dec prices = inc demand t/f employment opportunities as p’ers require inc labour 2 facilitate inc in output
Strengths of immigration policy
- can be targeted @ specific sectors where skill shortages exist
- impact by = short
- +ve impact on budget outcome with workers earning an income + paying personal income tax
- connections fostered with other countries in area of inc globalisation + advantage 4 Aus economy - communication in foreign lang, understandability of cultural differences
Weaknesses of immigration policy
- can be manipulated 2 become a politically sensitive topic
- taking skilled labour from another country undermining ability 2 achieve domestic eco goals
- can contribute 2 pop density in cities that do x have the infrastructure 2 cater 4 the inc number of residents, contributing 2 capacity constraints of infrastructure bottlenecks further holding back the prod capacity of the economy.
What is environmental policy
= seeks 2 minimise environmental harm often associated with growth such as the depletion of non-renewable natural resources / common access resources
What is market based environmental government policies
= aims 2 alter relative prices + t/f create financial incentives 2 minimise CO2 emissions + disincentives 4 bus who continue 2 pollute
What is the emissions trading scheme
= market based AS environmental policy that aims 2 change how g/s are produced by putting price on CO2 emissions through creating a market 4 tradeable pollution permits
-> Bus would be issued with certain amount of permits based on size + each permit can be exchanged 4 1 tonne of CO2 into atmosphere
-> Bus that x use permits can save 4 future or sell 2 other bus @ market price
Short term impacts of environmental policy
- inc cost inflation due 2 inc cost of prod t/f dec p power + access 2 g/s 4 households t/f dec MLS
- inc prod costs -> more bus 2 produce offshore where climate policies = inc lenient t/f inc unemployment + dec incomes
- due 2 potential inc in unemployment -> dec happiness + physical / mental health with inc stress t/f dec NMLS
Long term impacts of environmental policy
- MLS inc b/c policies encourage inc innovation which eventually dec costs which offset inc price from carbon dec
- creating price signals + incentives, bus who successfully dec emissions become inc profitable -> inc expansion with inc employment + incomes
- should improve air quality + health/wellbeing of pop + prevent -ve impacts of climate change t/f inc NMLS
Strength of AS policies
1) Simultaneous achievement of eco goals
2) Can help solve structural problems AD policies can x fix
3) Flexibility 2 target + discriminate; focus on particular industries
4) Market-based + interventionist supply side politics tend 2 have lrg impact on inc efficiency
5) Work in a complimentary way with AD policies -> inc lvls of growth
Weaknesses of AS policies
1) inc implementation + time lags dec their usefulness in S.T
2) Stabilisation role limited b/c AS policies more L.T than med term
3) Political constraints as +ve impact x always immediate
4) Conflicts b/n economics goal
5) By itself, inc in prod capacity as a result of AS policies is x enough, unless matched by an inc in spending (AD)
6) Financial constraints limit some AS policies - some policies involve heavy budget outlays
