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3.3 Part 5: Recent and future influences
on Australia’s economic growth.
- Recent and future influences
on Australia’s economic growth.
- Over recent years our economic
growth has been cyclical and has
been slow within the last four years
averaging around 2.7% in
comparison to the 3.5% it rose in
2007.
- GFC slowed our growth dramatically
- There was quite uneven recovery where rates rose from
1.9 - 3.4% which has been a great growth since the GFC.
- Most recently in 2012-13 growth was down from peak
and forecasts in the future remain modest.
- this pattern of growth reflects the changing demand
side conditions and hence GDP to accelerate or
slow.
- this pattern of growth reflects the changing demand
side conditions and hence GDP to accelerate or
slow.
- The short term pattern is
affected by changing
supply side conditions
that alter the economies
productive capacity, AS
and a long term
sustainable speed limit
for output.
- Over recent years our economic
growth has been cyclical and has
been slow within the last four years
averaging around 2.7% in
comparison to the 3.5% it rose in
2007.
- The influence of recent demand
side conditions on economic
growth
- moves cyclically in response to changes
made to demand side conditions which affect
AD (C+I+G+X-M).
- 2009-10 when spending grew faster, the stocks tended to fall. To
keep up firms lifted output thereby increasing economic growth. In
reverse weak spending caused unsold stocks to rise and new orders
to shrink, cutting production was necessary and investment was
deferred.
- Demand side conditions are:
- Changing
Levels of
consumer
confidence
- Changing
levels of
business
confidence
- Changes
in
disposable
income
- Changes in
interest rates
or cost of
borrowing
credit.
- Changes in
government
macroeconomic
policy
- Changes in
the level of
economic
activity
overseas.
- Changes
in the
exchange
rate for the
Australian
dollar.
- Using the
AD-AD
diagram to
show the
recent effects
of changing
demand side
conditions
- Changes
in terms of
trade
- Changing
Levels of
consumer
confidence
- moves cyclically in response to changes
made to demand side conditions which affect
AD (C+I+G+X-M).
- 1. Changing
Levels of
consumer
confidence
- affects the
growth of private
consumption
(C), AD, unsold
stocks and the
rate of growth in
production.
- collapse will
see a fall in
AD
- firms respond by
cutting production
- firms respond by
cutting production
- Greater optimism helps
lift AD and the rate of
GDP.
- affects the
growth of private
consumption
(C), AD, unsold
stocks and the
rate of growth in
production.
- 2. Changing
levels of
business
confidence
- Affects AD, sales,
stocks and
economic growth
by altering levels
of private
investment (I) or
purchasing of new
plant and
equipment.
- optimistic it increases private investment and
AD. Firms respond by lifting production and
accelerating growth.
- optimistic it increases private investment and
AD. Firms respond by lifting production and
accelerating growth.
- Investment is critical
because it
influences total
expenditure levels
and helps grow
productive capacity.
- Extreme
business
pessimism
(seeing the
worst) saw our
growth slowed.
- Affects AD, sales,
stocks and
economic growth
by altering levels
of private
investment (I) or
purchasing of new
plant and
equipment.
- 3. Changes in
disposable
income
- alters
household
consumption
spending (C)
- Slow rise depresses retail
sales and AD causing a rise
in stocks.
- firms were reluctant to lift
production because consumers
were not purchasing the
product. As a result economy
growth was slower.
- firms were reluctant to lift
production because consumers
were not purchasing the
product. As a result economy
growth was slower.
- Faster
disposable
incomes and
consumption
spending
pushes up
AD and
accelerates
growth.
- alters
household
consumption
spending (C)
- 4. Changes in interest
rates or cost of
borrowing credit.
- affects the level of
saving, rate of
household
borrowing used to
purchase larger
consumer items
and businesses to
purchase new
capital items
- High interest
rates - tend to
slow AD.
- Lower rates
- lift
expenditure,
business
production
and hence
the rate of
economic
growth.
- Lower rates
- lift
expenditure,
business
production
and hence
the rate of
economic
growth.
- affects the level of
saving, rate of
household
borrowing used to
purchase larger
consumer items
and businesses to
purchase new
capital items
- 5. Changes in government
macroeconomic policy
- a mixture of budgetary policy and
RBA monetary policy to deliberately
speed up or slow down the level of AD
and economic activity.
- These policy measure in recent
times have been countercyclical.
This means when very weak
spending was slowing Australia’s
rate of economic growth during the
GFC, an expansionary policy
approach was adopted. This
involved budget deficits and the
RBA slashing interest rates to an all
time low to stimulate AD
- When economic
activity increased
during 2010-11-12
the treasurer shifted
towards a surplus
which involved
slowing down
economic activity.
The RBA’s demand
side monetary policy
has switched to
booming more
expansionary to help
reduce the budget
deficit and slow the
economic down.
- These policy measure in recent
times have been countercyclical.
This means when very weak
spending was slowing Australia’s
rate of economic growth during the
GFC, an expansionary policy
approach was adopted. This
involved budget deficits and the
RBA slashing interest rates to an all
time low to stimulate AD
- a mixture of budgetary policy and
RBA monetary policy to deliberately
speed up or slow down the level of AD
and economic activity.
- 6. Changes in the
level of economic
activity overseas.
- greatly affects exports,AD, sales, stocks,
national production and economic growth.
- During the GFC there was a slowdown in economic activity
which depressed our exports and economic growth.
- Fortunately for us, our exports continued to grow so we weren't
caught in a rut.
- Fortunately for us, our exports continued to grow so we weren't
caught in a rut.
- greatly affects exports,AD, sales, stocks,
national production and economic growth.
- 7. Changes in
terms of trade
- Terms of trade -
ratio prices the
world pays
Australia for our
exports relative
to the prices we
pay the world for
our imports
- exports
change
relative to
imports, the
value of our
exports are
altered
- influences AD, stocks, production and
the rate of economic growth.
- influences AD, stocks, production and
the rate of economic growth.
- When Aus terms
of trade index rose
to high levels
during 2011-12, we
had far better
prices for our
exports then we
payed for our
imports. This lifted
our export rates
and AD which
caused firms to
increase
production and our
rate of economic
growth.
- During 2012-13, our terms of trade were
relatively weaker which helped to reduce the
value of exports relative to imports, slowing AD,
production and the rate of economic growth.
- During 2012-13, our terms of trade were
relatively weaker which helped to reduce the
value of exports relative to imports, slowing AD,
production and the rate of economic growth.
- Terms of trade -
ratio prices the
world pays
Australia for our
exports relative
to the prices we
pay the world for
our imports
- 8. Changes in the
exchange rate for the
Australian dollar.
- Influences the
attractiveness
and demand
for Australian
exports relative
to imports
(X-M)
- affects AD,
stocks, production
and the rate of
economic growth.
- When our
dollar falls, Aus
exports
become
cheaper while
imports dearer.
Increases the
rates of exports
and decreases
imports
increasing AD
and eco
growth.
- When the dollar
increases it
depresses the
value of our
exports, AD and
economic growth.
- When the dollar
increases it
depresses the
value of our
exports, AD and
economic growth.
- Influences the
attractiveness
and demand
for Australian
exports relative
to imports
(X-M)
- 9. Using the
AD-AD diagram to
show the recent
effects of
changing demand
side conditions
- illustrates the
impact of
demand side
conditions on the
level of AD and
economic
growth.
- strong conditions causes the economy
to be pushed to its maximum level of
productivity which can cause shortages
and demand inflation.
- strong conditions causes the economy
to be pushed to its maximum level of
productivity which can cause shortages
and demand inflation.
- optimum
rate of
growth
occurs
when AD
crosses
the AS line
- demand side conditions are weak,
falling spending levels cause eco
growth to slow perhaps resulting in
a recession.
- demand side conditions are weak,
falling spending levels cause eco
growth to slow perhaps resulting in
a recession.
- illustrates the
impact of
demand side
conditions on the
level of AD and
economic
growth.
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