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3.3 Part 5: The influence of recent
supply side conditions on economic
growth
- Overview
- affects the availability of resources, costs, profits,
business closures and the ability and willingness of
fir,s to produce goods and services.
- Alters the productive capacity or sustainable speed
limit at which AS and national output can grow.
- mixture of more/less favourable conditions affecting eco growth
- more favourable supply side conditions make firms willing to produce and
expand by cutting costs, boosting profit, improving access and grow
efficiency. The AS line here is larger than the economy can sustain.
- Less favourable conditions might slow the rate of economic growth.
- Supply Side conditions are
- Changes in
productivity.
- Changes in
interest rates
banks charge
businesses on
borrowed
credit
- Changes in
climatic
conditions
affecting
production
- Changes in
the exchange
rate for the
Australian
dollar
- The
existence of
bottle necks
in
infrastructure.
- Using the AD-AD
diagram to show
the effects of
changing supply
side conditions on
economic growth
- Changes in
productivity.
- affects the availability of resources, costs, profits,
business closures and the ability and willingness of
fir,s to produce goods and services.
- 1. Changes
in
productivity.
- affects
the way
resources
are used
and has
an impact
on the
growth
rate.
- Strong rising
productivity means
the AS moves to the
right and a faster
sustainable rate of
economy growth
occurs.
- Overall rises
in productivity
is below
those seen in
the 1990s
which limited
our
productive
capacity and
depresses
Australia’s
sustainable
rate of
economic
growth.
- affects
the way
resources
are used
and has
an impact
on the
growth
rate.
- 2. Changes in interest
rates banks charge
businesses on borrowed
credit
- influence
business
production
costs and
profits for firms
that need to
borrow credit
for expansion.
- RBA cuts interest rates,there was a
positive supply side impact. Low
rates helped cut business costs, lift
profits, grow investment in new
technology and equipment and
increase productive capacity and
AS
- boosted Aus long term sustainable rate of economic growth.
- boosted Aus long term sustainable rate of economic growth.
- RBA raises
interest rates this
discourages firms
to purchase new
equipment or
grow efficiency
and capacity,
slowing becoming
growth
- influence
business
production
costs and
profits for firms
that need to
borrow credit
for expansion.
- 3. Changes in
climatic
conditions
affecting
production
- Affects the level of rural
production and GDP.
- the drought slowed economic
growth. These undermined our
growth by destroying rural,
mining, transport and tourist
capacity.
- Climate change can affect us in the future.
- Affects the level of rural
production and GDP.
- 4. Changes in
the exchange
rate for the
Australian
dollar
- can make Australian goods and services look
more or less attractive or competitive overseas
which making imports more attractive at home.
- Rising dollar could force small manufacturing firms to close down or
cut costs and operations. This reduces growth in our productive
capacity slog with economic growth.
- Lower
Australian dollar
strengthens
international
competitiveness
of local
exporters.
- can make Australian goods and services look
more or less attractive or competitive overseas
which making imports more attractive at home.
- 5. The existence
of bottle necks in
infrastructure.
- having
adequate
infrastructure
such as road,
rails,
communications,
power, water
and education is
a a key supply
side conditions
- Relatively low and unattractive return for some private investors
has meant that supply could not keep up with demand, thereby
restricting the economies capacity to grow. As a result GDP
growth was slower than it would otherwise have been.
- Relatively low and unattractive return for some private investors
has meant that supply could not keep up with demand, thereby
restricting the economies capacity to grow. As a result GDP
growth was slower than it would otherwise have been.
- Vital for business
expansion, keeping
production costs
low and growing
efficiency.
- State of the
infrastructure effects the
productive capacity and
sustainable rate of
economic growth.
- Significant restrictions
on the supply of these
infrastructures has been
caused by a lack of
government funding.
- Significant restrictions
on the supply of these
infrastructures has been
caused by a lack of
government funding.
- having
adequate
infrastructure
such as road,
rails,
communications,
power, water
and education is
a a key supply
side conditions
- 6. Using the AD-AS
diagram to show the
effects of changing supply
side conditions on
economic growth
- illustrates the
effects of changing
supply side
conditions on the
long term rate of
economic growth
- Improved
supply side
conditions
reduce
constraints on
productive
capacity and
grow AS which
increases our
growth.
- Less favourable supply side conditions such
as higher production costs, low profits,
increase in bankruptcy and reduced efficiency
in the long term lowers the sustainable rate of
economic growth and accelerates inflation.
- Less favourable supply side conditions such
as higher production costs, low profits,
increase in bankruptcy and reduced efficiency
in the long term lowers the sustainable rate of
economic growth and accelerates inflation.
- favourable
supply side
conditions forces
the AS line to
move to the right
and the economy
grows.
- Increased economic
growth also increases
our GDP and sets a
new equilibrium
- illustrates the
effects of changing
supply side
conditions on the
long term rate of
economic growth
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