Adel - U4 AoS 2 Notes

Question 1

Purpose of AS Policies

Answer 1

1. Increase Quantity/Quality of Resources -> PC up
2. Raise Productivity
3. Lower Production Costs
4. Reduce Market Failure

Question 2

Differences: AS vs AD Polcies

Answer 2

1. Work Differently and with diff econ theories
   AD: countercyclical stabilise with Keynes
   AS: grow efficiency for long term sustain
2. Tackle Diff Econ Problems
   AD: cyclical moderation
   AS: structural problems
3. Diff Time Frames
   AD: short/med term stabilising
   AS: longer term PC and performance

Question 3

E.g. AD Cyclical Moderation Problems

Answer 3

Boom/recession, demand inflation, cyclical unemp

Question 4

E.g. AS Structural Problems

Answer 4

Poor intercomp, cost inflation, skill shortage, natural unemp

Question 5

Benefits/Aims of AS Policies

Answer 5

1. Improve eff in alloc scarce resources (4 efficiencies)
2. Strengthen Intercomp
3. Promote DME Stability
4. Support Better LS

Question 6

4 Efficiencies: How AS Improve

Answer 6

AE: stronger comp or reduce market failure -> move towards max satisfy

TE: cut costs -> PPF out -> more satisfy

DE: more flexible/resilient + RnD -> better satisfy changing wants

IE: environment -> long term more sustain

Question 7

4 Efficiencies: Where on PPF

Answer 7

AE: Any single point, but ensures res goes where most valued

TE: all points on PPF

DE: looks at speed of move between PPF points

IE: affects long term size of PPF and extent that wellbeing is max

Question 8

How AS Strengthen Intercomp

Answer 8

1. Support RnD + reduce cost inflation
2. More edu/training
3. Better infra
4. Reduce business tax
5. Invest in new tech
6. Trade liberal

Question 9

How AS Promote DME Stability

Answer 9

1. SSEG: AS -> lift efficiency -> production costs down -> “increase speed at which econ could pot. grow sustain”
2. Low Inflat: AS -> productive and low cost -> cost inflat down
3. Full Emp: AS -> low prod cost -> expand -> new jobs -> less struct unemp

Question 10

How AS Promote LS

Answer 10

Improve DMEC -> better LS + reduce severity of structural problems

Question 11

4 Immigration Streams are…

Answer 11

1. Skills stream
2. Family Stream
3. Special Eligibility Stream
4. Child Stream

Question 12

2 Factors Determining Aus Immigration Policy

Answer 12

1. Populate or perish
2. Ageing population (more recent)

Question 13

Problems of Ageing Population

Answer 13

1. Worse labour shortage (lack special skills)
2. High wage costs (shortage -> wage up -> less intercomp)
3. Erode gov finances (more welfare, less taxes)

Question 14

Key Features of Skill Stream

Answer 14

1. Sets annual target to manage overall - control population size
2. Allows flexible -> annual intake varies on changing econ
3. Prioritises Special Skills/Talents -> grow resource quality
4. Encourage younger - slow ageing and grow PC

Question 15

3 Skilled Immigration Categories

Answer 15

1. Employer-sponsored Migration Program
2. Distinguished Talent Program
3. Business Innovation/Investment Program

Question 16

Skilled Immigration Impacts…

Answer 16

1. Aus Population
2. Aus LF
3. PC/AS
4. Intercomp
5. DMEG
6. LS

Question 17

How Skilled Imm Impacts…
Aus LF

Answer 17

1. Grow LM: grows supply levels (better quality and lower wages) and demand (because they consume)
2. Strengthen Productivity: more skill -> slow wage -> intercomp -> PC -> EG
3. Grow Participation Rate: bc…
   1) Younger Age
   2) More Skill -> more employable

Question 18

How Skilled Imm Impacts…
PC/AS

Answer 18

Immigration -> more resource -> AS more fav -> PC out -> output more sustainable

Question 19

How Skilled Imm Impacts…
Intercomp

Answer 19

1. Lower wages (more available + productive -> more output per input)
2. EoLSP (more domestic market -> resources spread thin -> cheaper cost+selling)

Question 20

How Skilled Imm Impacts…
DMEG

Answer 20

1. Lower Inflation (from lower wages and EoLSP)
2. SSEG - fill shortages -> productive -> grow dom market
3. Full Employ - filling jobs that can’t be filled locally (not actually taking peoples’ jobs)

Question 21

How Skilled Imm Impacts…
Mat LS

Answer 21

1. Less labour shortage -> PC+GDP up -> more incomes
2. More participate and productive -> EG and incomes up
3. Lower wages -> better purchpow of higher incomes

BUT - reduce housing affordable + shortage of water/energy -> cost of living up

Question 22

How Skilled Imm Impacts…
Non-mat LS

Answer 22

Benefit: cultural and innovative -> LS up
Negative: Population up -> traffic -> pollution

Question 23

Weaknesses of Skilled Immigration

Answer 23

1. Not permanent solution
2. Econ benefits relatively small
3. Non-mat Trade-offs (environ and traffic)
4. Political Constraints (pros and cons not even shared)

Question 24

Trade Liberal Grows Resource Allocation bc…

Answer 24

1. Specialisation
2. More Efficient to be More Comp (cheap equip from abroad + EoLSP)
3. Grow Sie of Market

Question 25

Gov Trade Liberal Policies

Answer 25

1.Cut tariffs 2. Reduce subsidies/assistance 3. Abolish Quotas 4. Increase FTAs

Question 26

Good vs Bad Subsidies

Answer 26

Good: help to solve market failure and underproduction Bad: alloc to non-comp cost areas -> adds to OC and reduce PC

Question 27

Benefits and Negatives of Increase FTAs

Answer 27

Benefits: 1. Force specialise -> cost effective and intercomp 2. Access to EoLSP Negatives: 1. Firms can't reduce costs -> close 2. Short-term job loss

Question 28

Other Gov Trade Liberal Policies

Answer 28

1. Deregulate LM -> wages lower + productive 2. Cut company/personal tax -> profits up -> expand

Question 29

Trade Liberal Impacts...

Answer 29

1. Intercomp 2. DMEG 3. LS

Question 30

How Trade Liberal impacts... Intercomp

Answer 30

Short-term: imports cheaper -> Aus businesses close Long-term: 1. Comp -> prices down, quality up 2. Specialisation -> lower OC and prices down 3. EoLSP -> price down 4. Business restructure 5. Latest tech available 6. Forced to innovate -> prices down

Question 31

How Trade Liberal impacts... Low Inflation

Answer 31

1. Specialise -> avoid high costs 2. FTA -> EoLSP 3. Imports cheaper -> resources cheaper 4. Businesses restructure -> efficient and dynamic

Question 32

How Trade Liberal impacts... SSEG

Answer 32

Short term: bankruptcy limits EG Long-term: 1. Specialise -> grow EG potential 2. EoLSP -> more sales -> expand 3. Better equipment -> EG 4. Business Restructure -> more PC

Question 33

How Trade Liberal impacts... Full Employ

Answer 33

Short term: prevent infant industries from grow -> struct unemp Long-term: 1. More intercomp -> expand -> less struct unemp 2. FTA -> more export -> expand -> employ 3. EoLSP -> profits up -> expand -> employ

Question 34

How Trade Liberal impacts... LS

Answer 34

Short-term: can't cut costs -> close -> unemp -> stress + overall LS down Long-term: intercomp -> expand + happy -> overall LS up

Question 35

Weaknesses of Trade Liberal

Answer 35

1. Trade-off Exists 2. Political Constraints (softened by Parl debates) 3. Long Time Lags

Question 36

Purpose: Market Based Environ Strategy

Answer 36

Avoid Market Failure from... 1. Depletion of non-renewable natural resources 2. Avoid abuse of CAR

Question 37

Step-by-step: Carbon Tax

Answer 37

1. Supply conditions less fav -> less quantity supplied (bc less profit per unit) 2. Temp shortage -> equilibrium up 3. Move towards lower E2 -> lower quantity and higher price 4. Less consumers -> less emissions

Question 38

C-Tax: Why Lower Quantity

Answer 38

Supplier: lower profits -> less supply Consumer: higher prices deter consumption

Question 39

C-Tax: low vs high tax

Answer 39

Too LOW -> demand maybe inelastic -> little effect Too HIGH -> consumers import -> bad for Aus trade-exposed

Question 40

Environ Policy impacts...

Answer 40

1. Intertemp Effeciency 2. AS and LS

Question 41

Environ Policy Impacts... LS Short Term

Answer 41

Mat LS: 1. Inflation: erode profits -> more production costs -> inflation up -> LS down 2. EG: erode profits -> businesses close -> less GDP/relocate -> LS down 3. Businesses close -> unemp -> LS down Non-Mat LS: higher unemp -> less happy

Question 42

Environ Policy Impacts... LS Long Term

Answer 42

Mat LS: 1. Well target subsidies -> research -> reduce overall costs -> offset added price of carbon reductions 2. Restructure -> new industries + avoid tariffs of others -> EG sustained 3. Important combo with edu/training -> long-term incomes up -> LS up Non-Mat LS: Less emission -> reduce loss of life etc.

Question 43

Weaknesses of Environ Strategy

Answer 43

1. Trade-offs exist - trade-exposed suffer 2. Political Constraints - some benefit more than others -> unpopular 3. Long Time Lags - CC continues -> start soon 4. Financial Constraints - subsidies require costs BUT gov has debt 5. International Constraints - Some countries unwilling -> neg trade impact

Question 44

Key Features: Training/Education as a Policy

Answer 44

1. Increased Fed school funding 2. Pre-school funding 3. Apprenticeship and traineeship (fill in shortage in key areas that limit PC) 4. Support for women (e.g. for STEM scholarships) 5. Scholarships and other (e.g. regional)

Question 45

Train/Edu Impacts on...

Answer 45

1. DMEG 2. LS

Question 46

Train/Edu Impacts on... Low Inflat

Answer 46

1. Quality: More efficient -> lower costs -> lower price -> intercomp + low cost inflat 2. Quantity: Less skill shortage -> more labour supply -> lower wages -> less cost inflat

Question 47

Train/Edu Impacts on... SSEG

Answer 47

1. Quality: more productive -> dynamic and tech eff -> less skill shortage -> PC/EG 2. Quantity: Less labour shortage -> slow wages -> profit -> expand -> EG up + efficient >> slow wage growth >> expand

Question 48

Train/Edu Impacts on... Structural Unemp

Answer 48

1. Quality: job ready -> less structural unemp from skill mismatch 2. Quantity: less skill shortage -> less wage growth -> business expand -> less struct unemp

Question 49

Train/Edu Impacts on... LS

Answer 49

Mat LS: 1. Slow Cost Inflat -> more intercomp + more employ -> incomes 2. Training -> less underproduce/failure -> more N/W satisfied Non-Mat: More employable -> less unemp -> happy -> non-mat up

Question 50

Weaknesses of Train/Edu

Answer 50

1. Financial Constraints (Aus has debt -> less edu spending than others) 2. Money Misdirected ("dubious resources" like canteens and gyms instead of econ beneficial) 3. Poor Edu Outcomes (Aus standards fall rel to others) 4. Finding Promotes Inequity of Opportunity (directed to privileged non-gov private -> widens opportunity gap)

Question 51

Strengths of AS Policy

Answer 51

1. Precise to target structural 2. Works complementary to AD 3. Not all AS Has Trade-offs when pursue gov goals 4. AS can benefit AD

Question 52

Weaknesses of AS Policy

Answer 52

1. Long Implementation/Impact Time Lags 2. Financial Constraints Limit Impact (debt) 3. AS Policies have Trade-offs (enviro BUT short term pain) 4. Political Constraints (watered down policies) 5. Increase in PC from ONLY AS Policies is Limited + Not Enough 6. Some Assumptions of AS Policy Operations Don't Apply in Practice

Question 53

How AS work with AD

Answer 53

AS = long term structural, AD = short term cyclical stable Together = DME now and future

Question 54

E.g. AS pursue gov goals no trade-offs

Answer 54

AS can slow cost inflat without slowing EG/Unemp

Question 55

When AS Policy Assumptions Don't Apply in Practice

Answer 55

Theory: lower taxes -> businesses grow BUT - people work less hours -> limit gov revenue and outlays

Question 56

Why Increase in PC from ONLY AS Policies is Limited + Not Enough

Answer 56

Increasing potential does NOT guarantee other things increase too, UNLESS matched with rising spending/AD

Question 57

Recent Budget AS Policy

Answer 57

$5 billion for building new universal early childhood education and care system i.e. "Building Early Education Fund" = increase high-quality early education across Aus + increase early educator wages + "3 Day Guarantee"

Question 58

What is "3 Day Guarantee"?

Answer 58

Guaranteed eligibility for at least 3 days a week of subsidised early childhood education and care