microeconomic policy (1 Viewer)

[clairegirl]

Hey dudes...
A couple of questions

how does deregulation (the floating of the australian dollar)
reduce inflation?

How does labour market reforms increase economic growth and lower inflation?

(I know labour market reforms, through enterprise bargaining... link wages with productivity and thus reducing cost push inflation in the future because producers are in agreement about the wages therefore they arnt forced to pass on the price to consumers) I think theres more to it than that..... or am i just thinking too much?

 

[kt san]

efficiency not only keeps cost of wage low but produce more....so that also reduce cost push inflation

 

[pearla]

MER has heaps more to it than just the deregulation of Forex and financial markets and the labour markets.

By encouraging productivity by 'REFORM(ation)' of areas of the economy they make it easier for business to be conducted under more free and liberal conditions..


Starting with the LAbour market, The decentralisation and deregulation (all labour market reforms) broke the powers of teh unions, encouraged individual agreements bt. employees and employers and increased productivity while delivering wage increases taht did not have inflationary pressures.

I wouldnt really say that floating the AUD really stemmed inflation, it was part of a group of reforms including the Depoltisizing of the functions of the RBA that lead to more stable economic conditions (i.e. RBA adopting inflation targeting, Govts can no longer drop rates for political reasons like just before an election) that improves the economy in the long term - all structural improvements to the economy.
The floating of the AUD probably actually increases inflation, because after it was floated our dollar started dropping which makes exports more expensive. However that is really only a short term negative that has been overcome by the overwhelming positives of having a floating exchange rate, i.e. a Naturally Balancing BOP, and stupid ammounts of money arent spent buying surplus funds to ensure taht the pegged price of the dollar is maintained.

Theere are obviously heaps of other parts to MER/Structural reform but im not sure if you really want to know about those... Like the Corprotisation of GBEs etc, competition policy, opening of monopolies........... basically everything that has ever happened in the economy to improve the business environment, promote competition, and more 'free market' attitudes is something that falls under MER... Taxation reform is another huge one...

hope ive helped

 

[TastesGoodBut]

it depends on the supply side...

High taxes and heavily regulated markets have an unhealthy effect on savings, investment and incentives to work. by lowering these, AS will increase causing unemployment fall and growth to rise. As it is the supply that increases, AS will grow faster than AD hence reducing inflationary pressures

 

[timmii]

Before the australian dollar was floated, the balance of payments didn't balance. This meant that the money supply changed depending on the CAD. The RBA was tied to conducting monetary policy with an eye to also keep the dollar at a certain value (i.e buying/selling dollars and therefore changing the money supply - think unsterilised "smoothing and testing"). By letting the dollar float, the RBA could instead focus on changing the money supply to maintain a low level of inflation.

Check the BoP threads if you're interested...

 

[Damien]

Deregulation
- Financial Sector
- Demonopolisation
- Labour market

Removal of Industry Assistance Programmes / Protectionism
- Comparative advantage
- Efficient allocation
- Increased long-term employment
- Trade benefits
- Increase levels of competition -> Force domestic producers to become more internationally competitive ('Sink or Swim')

Labour Market reforms
- Compulsory Superannuation -> Increase private sector savings
- Retraining and reskilling programmes (e.g. Work for the Dole) -> Reduce structural unemployment
- Casualisation (Although not a Government policy) increases occupation and geographical moblity of labour; as does retraining and reskilling.
- Apprenticeship schemes


That's just off the top of my head, I'm sure theres a dozen other things you could talk about, but lets keep in mind the exam is 3 hours long.