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VCE Economics Units 3&4 > Unit 4 Eco Chapter 16&17: Policy Mix > Flashcards

Unit 4 Eco Chapter 16&17: Policy Mix Flashcards

1
Q

Immigration & Environmental Policies
Why Australia has a need for Immigration policies?
Issues with an ageing population are….

A
  • decreased numbers in labour force
  • decreased fertility rates
  • decreased government revenue
  • increased government spending pressures for health care
  • capacity utilisation pressures
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2
Q

Immigration & Environmental Policies

3 basic schemes for immigration?

A
  1. Skilled migration - focus is on skills and talents that are needed (represented about 2/3 of all immigration into Australia)
  2. Family - the focus of reunions
  3. Humanitarian - focus on people from war torn or famine devastate countries (numbers capped at 14K pa)
    - > 14K is not a lot in comparison to past intake like Post VN war - over 100K
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3
Q

Immigration & Environmental Policies

Why Australia has a need for immigration policies?

A

Immigration is a necessary activity to combat the issues connected with the ageing population.

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4
Q

Immigration & Environmental Policies

How Immigration impacts Strong & Sustain. Eco Growth?

A 
Immigration helps to expand the economy.
This is done by
- reducing inflationary pressures
- increasing demand in the economy
- increasing the participation rate
- increasing skills and knowledge
- improving innovation
- increasing productivity by Worlds Best Practice
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5
Q

Immigration & Environmental Policies

How Immigration impacts Low Inflation

A
  • Reducing labour shortages and associated wage pressures
  • Introducing new production methods that reduce business costs
  • Creating competition which helps to reduce prices

Note- not all immigrants will work due to age. This can cause more Ad than AS and result to inflation

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6
Q

Immigration & Environmental Policies

How Immigration impacts Full Employment

A
  • Gov’s strict guideline for immigrants applying for residency
  • Immigration adding signficantly to the level of AD in the country thereby creating additional need for labour in the production process
  • Need financial support (residency, financial requirements)

Note- immigrants fill in skill shortages, but does not help those who are long term structurally unemployed. Argue against is that people need to be retrained, and take on new skills.

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7
Q

Immigration & Environmental Policies

How Immigration impacts External Stability

A

Improvement in the CAD and increase international competitiveness

  • Increasing efficiency & productivity
  • Having knowledge of the customs in other countries help with negotitations
  • Immigartion removes labour shortages and helps decrease real unit labour costs (RULC)
  • RULC - immigrant increase, increase labour force, decrease wage pressures, no wage price spiral issue.

note- immigrants may still demand products from home country, increasing imports. However this is a small price to pay for other benefits.

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8
Q

Immigration & Environmental Policies

How Immigration impacts Equitable Income Distribution? (Negatives)

A

Mixed impact

  • Can help to cause house price inflation (if house supply can’t keep up with demand)
  • Increased housing costs can lead up to a reduced ability to buy necessary items
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9
Q

Immigration & Environmental Policies

How Immigration impacts Equitable Income Distribution?(Positives)

A

Mixed impact

  • Increase real GDP this creating more jobs, reducing number of people relying on welfare
  • Increase real GDP and average incomes resulting in ability to buy more goods and services,
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10
Q

Immigration & Environmental Policies

How Immigration impacts on Living Standards? (P&N)

A

POSITIVE

  • Helps to address ageing population
  • increase tax revenue
  • increases cultural diversity
  • creates economies of scale (lowering prices)
  • increases trading connections

NEGATIVES

  • Immigration numbers need to be determined based upon current and future pressures on the environment
  • water levels
  • soil eroison
  • water disposal
  • social cohesion
  • food
  • energy
  • infrastructure needs
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11
Q

Immigration & Environmental Policies

Why Australia has a need for environmental policies?

A
  • Gov action is needed to conserve the natural environment.
  • Designed to protect Aust’s long term economic prosperity & maintain and improve living standards
  • Need to ask ‘Can we have continued growth while protecting the resource base of human life and ecological systems that sustain us?’
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12
Q

Immigration & Environmental Policies

What are the details for the Emission Reduction Fund?

A

AIM: Assist households and firms to take action to reduce their emissions and improve the environment.

  • Designed to PAY businesses who can reduce their emissions in the most cost effective manner.
  • criticism - it is voluntary.
    Nothing to compel businesses to reduce their emissions and while some may try to receive the Gov’s money, others can contribute to increase in pollution level.
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13
Q

Immigration & Environmental Policies

How the ERF will impact on AS and living standards?

A

AS -

Living Standards -

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14
Q

Policy Relationships & Current Policy Mix

Why does a policy mix exist in Australia?

A

To use demand and supply side polcies to achieve the 5 economic goals and improve living standards

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15
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (Eco Growth) to achieve it’s 5 economic goals & living standards?

A

MP, BP, AS

BP
During 2010, there was contractionary budgetary and monetary policies to achieve a budget surplus. The cash rate was increase to 4.75% by late 2010. These contractionary policies prevent eco growth from becoming unsustainable the short term.

MP & BP
In 2011, both monetary and budgetary policies were implementing contractionary measures despite 2011 natural disasters. By the of 2011, the RBA became concerned about slow growth rates in all sectors (except mining). There was also low growth in Europe that impacted negatively on our export sector combined with low levels of business and consumer confidence which reduced spending and growth.
Therefore the government decided to implement expansionary budgetary measures to promote growth.
The RBA also decreased the cash rate from November 2011 to August 2013.

Budgetary policy in the past few years, after 2013 became contractionary to reduce inflationary pressures and budget surplus at the same time allows monetary policy to improve sustainable economic growth via the reduction in the cash rate.

AS
The combination of macroeconomic and AS policies used to achieve low inflationary growth into 2014-15 - e.g the 2014-15 budget committed to a $11.6B on road infrastructure.

AS policies such as continued infrastructure investment allows the economy to expand at a faster rate and therefore allow monetary policy and budgetary policy to promote demand without running into excessive inflation.

Examples of AS policies include immigration and environmental policies that help to alleviate capacity constraints and allow the AS level to increase sustainably.

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16
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (Low Inflation) to achieve it’s 5 economic goals & living standards?

A

MP, AS, BP

  • The government’s target inflation range is between 2-3%. MP is the primary weapon that is currently being used to counteract low inflation. However, AS policies and Budgetary Policies also assist in addressing this economic goal.
  • MP is able to effectively restrain AD through the manipulation of the cash rate by tightening. For example, this was seen in 2009 and 2011 where there was a need to contain emerging inflationary pressures to reduce consumer demand and spending

AS
- Due to the tightening of MP, it eventually became more restrictive as AS policies includes MRPs (such as trade liberalisation and competition policy). Loosening of the MP is employed to stimulate the demand when inflation is within the target range. (e.g 2012-2014)

BP
- The MP is limited in the ability to directly reduce cost inflationary pressures and therefore, Budgetary Policy supply side initiatives are implemented to alleviate capacity constraints and cost inflationary pressures. An example is the use of immigration policies (increasing the skilled migrant intake) and increased spending on infrastructure. Structural changes to the budget have assisted in the reduction of inflationary pressures.

17
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (Full Employment) to achieve it’s 5 economic goals & living standards?

A

BP, MP, AS
By using Monetary policy, Budgetary policy and Aggregate Supply policies.

MP
- In terms of Monetary Policy, it has and will focus on reducing unemployment in the short term if low inflation can be achieved. In order to achieve low inflation, an expansionary stance should be implemented (e.g. injecting more into the economy). This will create a low inflationary
environment in the longer term.

BP
- In relation to the Budgetary Policy, BP side initiatives are implemented to increase employment in the long term. This can be achieved through rebates, personal income tax cuts and reduction in compliance costs.
For example, personal income tax cuts increases AD and in order to help compensate for the increased demand, more labour resources will be needed to help increase output.

AS
- In terms of AS policies, the reduction in production costs will allow the economy to be more internationally competitive. Thus, the demand for labour should increase (as costs decreases), creating additional employment and reducing the rate of unemployment in the short term.
AS policies such as the $11.6B infrastructure growth packaged announced in the 2014-15 Budget also remain a key component of the policy mix that helps to create jobs and reduce unemployment over the longer term.

18
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (External Stability) to achieve it’s 5 economic goals & living standards?

A

BP, AS

(Initially, the Government used Monetary Policy to achieve external stability. However, the tightening of MP was having conflicting impacts on the international market. The higher interest rates appreciated the AUD and reduced international competitiveness, thus reducing net exports and reducing the CAD).

BP
- Currently, in order to achieve a more externally stable economy is achieved by a combination of Budgetary and/or Supply Side Policies, including the use of MRPs. This can result in an increase in national savings or to increase Australia’s world income. By implementing superannuation tax concessions, the Government hopes to increase the country’s national savings, to reduce NFD, achieving external stability.

AS
Additionally, many AS policies may aid in increasing Australia’s share of world income by improving international competitiveness from various MRPs and export market development grants.

19
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (Income Dist.) to achieve it’s 5 economic goals & living standards?

A

BP

Budgetary policies are used this is because it controls the progressive tax system, the provision of welfare and indirect benefits (healthcare cards to obtain cheaper medications, cheaper household utility bills, cheaper car registration and cheaper public transport) that benefit low income earners.
Examples of initiatives are means testing of family payments and tax cuts. Monetary policy and other AS policies aren’t used because they aren’t designed to target equity as a goal of policy but are able to improve equity in the longer term.

20
Q

Policy Relationships & Current Policy Mix

How the Gov uses the Policy mix (Living Standards) to achieve it’s 5 economic goals & living standards?

A

AS, BP, MP

MP
Monetary policy is used to increase the economic prosperity and welfare of all Australians in the long term as outlined in the RBA charter

BP

  • Budgetary policy is used to address market failures:
  • Such as taxes on the production of goods with negative externalities (e.g. cigarettes and alcohol)
  • Expenditure to fund the provision of public goods or those with positive externalities (e.g. defence and education)

AS

  • Aggregate Supply policies – immigration and environmental policies :
  • Protect against the incidence of negative externalities, like global warming (e.g. the carbon pricing or direction action support for clean producers)
  • Floods (the Flood Reconstruction Packages)
  • Depletion of natural habitat (e.g. environmental legislation like the Environment Protection and Biodiversity ACT)
21
Q

Policy Relationships & Current Policy Mix

Know 2 strengths of the policies (Budgetary)

A
  • It can target specific sectors or industries

- More effective stimulating AD during a downturn

22
Q

Policy Relationships & Current Policy Mix

Know 2 weaknesses of the policies (Budgetary)

A
  • It is only announced in May each year.
    (but it is revised in December)
  • Subjected to political bias especially around election time
23
Q

Policy Relationships & Current Policy Mix

Know 2 strengths of the policies (Monetary)

A
  • Political bias free because it is independent from the government
    ( don’t have to listen to Gov, and focus on what they believe is best for the economy)
  • Powerful influence on the behaviour of consumers, investors, borrowers and lenders.
    (confidence for economic agents)
24
Q

Policy Relationships & Current Policy Mix

Know 2 weaknesses of the policies (Monetary)

A
  • Unable to focus on a specific sector/industry
    (Once cash rate altered, everyone feels the impact. more of a complimentary policy better)
  • Relies on forecasts and estimates, forces decisions to be forward thinking which can be incorrect
    (Governor and board use data and stats for forecasts, and the future cannot always predict what will happen in the world.)
25
Q

Policy Relationships & Current Policy Mix

Know 2 strengths of the policies (AS Policies)

A
  • Improve efficiency and international competitiveness

- Are able to simultaneously achieve all government goals in the long run

26
Q

Policy Relationships & Current Policy Mix

Know 2 weaknesses of the policies (AS Policies)

A
  • Can have time lags which are lengthy, and full benefit may not be experienced for a number of years
    (e. g China FTA)
  • Short term costs such as business closures, structural unemployment and income distribution inequitable

VCE Economics Units 3&4 (27 decks)

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