Supply side economics – Flashcards
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supply side policies
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designed to increase the average rate of growth of the economy. Also helps reduced inflation and unemployment
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supply side economics
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favours policies that are aimed at creating the basic economic conditions for long run increases in output. This overtime should allow AD to increase without increasing inflation.
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supply side aim
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increase total output, without shortages occurring that lead to inflation
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stagflation
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high inflation, high unemployment, stagnant production
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when supply side policies are effective
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pushes long run AS curve to the right (increase economic growth, less inflationary pressure, reduction in unemployment)
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bottlenecks
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occur when resources reach full capacity and cannot handle any additional demands; they limit throughput and impede operations (prevent whole economy from growing faster)
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interventionist economists
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the gov will inetervene if something goes wrong, democratic.
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supply side economists and government
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should not intervene in the free market their role is to remove restrictions to the operations of individual markets
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Keynesian economists and the government
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governments need to intervene on the supply side correct market failure
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Stagflation in 1970s
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oil crisis and the financing of the Vietnam War creating inflation and unemployment (stagflation)
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supply side policies (microeconomic reform)
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highly market based, aimed at efficiency and getting rid of interferences with the market (government)
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Anglo economies
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free market, get government to pull out
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Nordic economies
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Keynesian way, increase aggregate supply with government help
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labour market policies
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Microeconomic policies that are aimed at influencing the operation and outcomes in the labour market, including industrial relation policies that regulate the process of wage determination as well as training, education and job-placement programs to assist the unemployed.
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trade unions
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Early labor organizations that brought together workers in the same trade, or job, to fight for better wages and working conditions
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state welfare benefits
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workers unlikely to take low paid work if benefits are a little below or equal to wage. State benefits reduce AS because workers remain unemployed
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Marginal Tax Rates
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taxes on additions to your income (lowering tax will raise level of economic activity and increase AS)
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Laffer curve
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Attempts to explain how consumers react to changes in income tax rate (tax rates increase- economic activity is discouraged)
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neoliberalism
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A strategy for economic development that calls for free markets, balanced budgets, privatization, free trade, and minimal government intervention in the economy.
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economic rationalism
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political approach that assumes that society is determined or should be by individuals acting in their own economic interests
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labour market reform
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reforms intended to make labour markets more competetive and flexible , to make wages respond to the force of supply and demand, to lower labour costs and increase employment by lowering the natural rate of unemployment; include abolishing or reducing minimum wages, reducing job security and reducing unemployment benefits. Type of supply-side policy
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pros about reforms
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cost cutting, efficiency boost by producing more output or GDP
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Government's key economic goals
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low inflation, strong and sustainable economic growth, full employment, external stability, equity in income distribution
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microeconomic labour market reforms were introduced
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1990s-2013
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Labour market reforms
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deregulating wages and working conditions simplifying the award wage system and altering its approach to wage determination (federal government)
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labour market policies were aimed at
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lifting labour efficiency, keeping labour costs down, improving flexibility of wage system and growing productive capacity due to globalization and trade liberalization
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centralized wage system
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government through Fair Work Commission determines wage levels that are applied fairly uniformly across the country
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enterprise bargaining
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system where wages and working conditions are negotiated between workers and the employer at each individual work place
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Fair Work Australia
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set up by government for all industrial relations matters including the setting of the minimum wage, dispute resolution, unfair dismissal, national employment standards and promoting award modernization process
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Fair Work Responsibilities today
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conducting national wage case to decide level of award wages, facilitating enterprise agreement, reviewing unfair dismissal, regulating industrial action
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modern awards
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new system of wages introduced in 2010 as a part of labour market reforms designed to simplify and rationalize the old system
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FWC's role in setting national employment standards
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ten national employment standards designed to protect workers
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advantages of centralized wage system
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safety nets for wages and conditions to prevent worker exploitation, diminished working conditions, falling wages, income inequality and unacceptable living standards (protects workers with little bargaining strength)
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disadvantages of centralized wage system
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discourages AS, lacks flexibility, makes local firms uncompetitive, undermines business profits
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advantages of decentralized wage system
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more favourable supply side conditions, improves flexibility, builds efficiency, boosts sustainable rate of growth, slow cost inflation strengthens international competitiveness
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Fair Work Act 2009
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modified more severe aspects of Work Choices by strengthening unfair dismissal provisions protecting minimum working conditions through reapplying the better off test and making new Australian Workplace agreements illegal (AWAs)
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2012 Fair Work amendment act
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tried to improve workplace and enterprise flexibility and efficiency
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Better off overall test
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assesses the acceptability of all enterprise agreements, requires that the ten employment standards be matched or exceeded in enterprise agreements for those above the high income threshold ($118300)
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problems with better off overall test
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labour costs will be higher (business disincentive), accelerating cost inflation, undermining international competitiveness, higher labour costs erode business profits discouraging growth of productive capacity and AS
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enterprise agreements are renegotiated
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every 3-4 years with workers and boss to renegotiate wages and conditions
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Work Choices Act
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All companies with less than 100 employees will be exempt from unfair dismissal claims. Exempt employers need not provide valid reasons or fairness when terminating. The probationary period increased to 6 months. Redundancies can't be challenged. Non-award employee payouts reduced to $32,000.
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No disadvantage test
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standard applied to all wage agreements whereby workers could not have pay and conditions below certain minimum standards applied to relevant wage awards (replaced by BOOT)
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egalitarianism
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A belief in the equality of all people
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FWC
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is a regulatory body
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1990s
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transformation period of labour market reforms
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labor government (Hawke, Keating, Howard)
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deregulation happened with a
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until 1970s
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government protected local industry from imports and foreign competition using high tariffs, generous subsidies to exporters to help them cover production costs, were restrictions on quantity and types of imports permitted into the country (helped local firms survive foreign competition)
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Policy of trade liberalization
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cutting tariffs, reducing subsidies, abolishing import quotas, increasing number of bilateral free trade agreements
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trade liberalization
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A process that involves countries in reducing or removing trade barriers, such a tariffs and quotas, so goods and services can move around the world more freely
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workplace relations
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relationship and negotiations between employers and employees in the workplace over wages and working conditions includes awards or workplace agreements used to determine the conditions under which wage increases and improvements in working conditions
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collective wage agreements
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workplace agreements negotiated directly by employees (represented by trade unions) and employers over wages and working conditions. Collective enterprise agreements are registered with Fair Work Australia if they pass BOOT
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microeconomic policies likely to cause a shift to the right of AS curve
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competition policy, tariff reform, taxation reform, labour market reform and reforms in transport and communications industries
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microeconomic policy is successful
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more output can be produced with the same level of inputs (GDP increases and the price level will fall over the long run)
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microeconomic reform will result in an increase in productivity
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raises the quality of inputs being applied in production or it improves the allocation of inputs between production activities
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three main types of efficiency gains linked with microeconomic policies
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allocative efficiency (reflects demand for goods and services), productive efficiency (produce output- try to minimize unit costs of production), dynamic efficiency (firms adapt to changing economic circumstances-market indicators)
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Non Accelerating inflation rate of unemployment (NAIRU)
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lowest rate of unemployment we can have before inflation starts to take off because of shortages
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1990s GFC
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it is argued that the Keating reforms in 1990s provided enough flexibility in labour market for businesses to adapt quickly when the GFC hit plus stimulus
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Labor
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labour/ human resources
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Liberal
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enterprise/ capital resources
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Greens
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natural resources
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liberals
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dry and wets
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dry
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strongly neoliberal, strongly market based
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wets
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neoliberal with a bit more Keynes, do not believe in getting rid of welfare, market based with some intervention
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inflation
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A rise in the general level of prices
