AGGREGATE SUPPLY POLICY - U4 AOS2

• What does aggregate supply policy consist of?

  A wide range of government strategies designed to make aggregate supply conditions more favorable for producers
• What are the main objectives of aggregate supply policy?

  To increase the quantity and quality of resources, productivity, lower production costs, and reduce market failure
• What are the differences between AD and AS policies?

  • AD policies focus on demand-side issues.
  • AS policies focus on supply-side issues.
  • AD theory: 'Demand creates supply'.
  • AS theory: 'Supply may create demand'.
  • AD fixes cyclical problems; AS fixes structural problems.
  • AD stabilizes spending in the short term; AS improves long-term productive capacity.
• What is a budgetary policy used to affect aggregate supply?

  Budget outlays to improve national infrastructure, education, training, and R&D
• How does skilled immigration affect aggregate supply?

  It grows the size of the labor force and addresses skills shortages in an aging population
• What is the purpose of trade liberalization in aggregate supply policy?

  To cut tariff rates, abolish import quotas, and ease restrictions on imports and capital flows
• What are the aims of aggregate supply policies?

  To lift efficiency in resource allocation, improve international competitiveness, promote domestic macroeconomic stability, and support better living standards
• How do AS policies ensure allocative efficiency?

  • Trade liberalization helps allocate scarce resources efficiently.
  • May require government intervention to address market failures.
• What is productive efficiency in the context of AS policies?

  • Encouragement of skilled immigration.
  • Budget outlays on education, training, and R&D.
  • Helps firms cut production costs by employing best practices and technology.
• What is dynamic efficiency in AS policies?

  It encourages market flexibility and resilience in response to changing tastes and promotes innovation
• How do AS policies affect intertemporal efficiency?

  They help rebalance intertemporal efficiency for more equitable and sustainable outcomes
• What are the targets of international competitiveness measures?

  To reduce cost inflation, increase budget outlays on education and infrastructure, and reform business tax rates
• How do AS policies aim to achieve price stability?

  By improving productivity and slowing production costs
• What is the relationship between sustainable growth and AS policies?

  AS policies lift efficiency and reduce production costs, allowing for faster economic growth
• How do AS policies contribute to full employment?

  By reducing the rate of natural unemployment without accelerating inflation
• What is the role of tax reform in aggregate supply policy?

  • Reduces tax rates to favor production.
  • Focuses on reducing the tax burden and improving the tax mix.
  • Aims for equity, simplicity, and efficiency in the tax system.
• What was the tax reform threshold change in 2012-13?

  Increased from $6000 to $18,200
• What was the Medicare levy increase in 2013-14?

  Increased from 1.5% to 2%
• What were the stages of the 2019-20 tax reform?

  Stage 1: tax relief for low-middle income households; Stage 2: increases in tax offsets; Stage 3: replaced top brackets with a simple 30% top bracket
• What was the company tax rate reduction in 2002-03?

  Reduced to 30% from 34%
• What is the rationale for income tax cuts?

  To create incentives for longer work hours, increase labor force participation, and lower labor costs
• How do company tax cuts benefit businesses?

  They create incentives for expansion and improve international competitiveness
• What are the impacts of sustainable economic growth on aggregate supply conditions?

  • Reduced inflation and increased international competitiveness.
  • Lower income tax rates lead to increased labor force participation.
  • Higher disposable income reduces income inequality.
  • Lower tariffs improve business conditions.
• What are the weaknesses of aggregate supply policies?

  Inconclusive evidence, financial constraints, trade-offs, political constraints, and suboptimal tax mix
• What is Australia's immigration target related to skilled immigration?

  • Aimed at addressing skills shortages.
  • Comprises around 70% permanent visas targeting labor market needs.
  • Includes family and special eligibility streams.
• What are the three categories for skills entry in Australia's immigration policy?

  Employer-sponsored migration, distinguished talent program, and business innovation and investment program
• What are some targeted shortages by the skilled migration program?

  Health care, education, accommodation services, and professional scientific fields
• How does skilled immigration impact productivity?

  Skilled immigrants enhance labor productivity and reduce wage costs
• What are the benefits of trade liberalization?

  • Encourages specialization and technological adoption.
  • Expands market size and gains economies of scale.
  • Reduces protectionism and boosts competitiveness.
• What are the short-term effects of trade liberalization on local firms?

  Increased foreign competition, firm closures, and higher labor costs
• How does trade liberalization affect inflation?

  It leads to greater efficiency and reduced costs of imports, easing inflationary pressures
• What is the purpose of a market-based environmental policy?

  • To change the behavior of producers and consumers regarding environmental damage.
  • Includes measures like carbon taxes and R&D funding.
• What is the purpose of a carbon tax?

  To put a price on emissions and correct market failure
• How can carbon taxes be made progressive?

  By redistributing revenue to low-income households through equal carbon dividends
• What is the social cost of carbon (SCC)?

  The estimated damage of an additional ton of CO2 emissions
• How do carbon taxes impact aggregate supply in the short term?

  They have negative short-term impacts by disincentivizing production
• What are the long-term impacts of carbon taxes on aggregate supply?

  They allow for future production in a cleaner environment
• What are the challenges associated with skilled immigration?

  • Not a permanent solution.
  • Economic benefits are relatively small.
  • Non-material trade-offs or costs.
  • Political constraints.
• What are the impacts of trade liberalization on material living standards?

  • Higher incomes and increased consumption.
  • Boost to exports and improved health and happiness.
  • Cultural enrichment and global engagement.
• What are the weaknesses of trade liberalization?

  Trade-offs exist, political constraints, and long time lags