About this resource vii
Acknowledgements ix
Unit 3 Australia’s Economic Prosperity 1
Area of Study 1 An Introduction to Microeconomics: The Market System, Resource Allocation and Government Intervention
1 An introduction to microeconomics 3
1.1 Overview 3
1.2 BACKGROUND KNOWLEDGE What is economics? 5
1.3 Relative scarcity 6
1.4 Choice, opportunity cost and resource allocation 11
1.5 The nature and general effects of market structure in an economy 19
1.6 Microeconomics: the market as an important decision maker in Australia’s economy 24
1.7 The effects of changes in demand and supply conditions on market equilibrium and the allocation of resources 33
1.8 The meaning and significance of price elasticity of demand and supply 47
1.9 Reasons for market failure and government intervention to address market failure in Australia’s economy 52
1.10 Government intervention in markets that unintentionally leads to decreased efficiency 64
1.11 Review 71
Area of Study 2 Domestic Macroeconomic Goals
2 Economic activity and Australia’s goals 90
2.1 Overview 90
2.2 The difference between material and non-material living standards and factors affecting each 92
2.3 BACKGROUND KNOWLEDGE Nature, effects and measurement of economic activity 97
2.4 The nature and causes of the business cycle showing changes in the level of economic activity 101
2.5 Using the circular flow model to understand the macro influences on domestic economic activity 107
2.6 Meaning and importance of aggregate demand and the factors affecting domestic economic conditions 113
2.7 Meaning and importance of aggregate supply and the factors affecting its level and domestic economic conditions activity 121
2.8 Using a diagram to show the effects of changes in aggregate demand and supply on domestic macroeconomic conditions 129
2.9 The goal of low inflation (price stability) 139
2.10 The goal of strong and sustainable economic growth 149
2.11 The goal of full employment 162
2.12 Aggregate demand and aggregate supply factors that have influenced domestic macroeconomic performance in the last two years 175
2.13 Review 191
Area of Study 3 Australia and the World Economy
3 Australia and the world economy 217
3.1 Overview 217
3.2 The relationship between trade and living standards 220
3.3 Recording international transactions on the balance of payments account 229
3.4 The net foreign debt (NFD) 243
3.5 The terms of trade 247
3.6 The exchange rate 253
3.7 Australia’s international competitiveness 261
3.8 The nature and effects of the Australian government’s policy of trade liberalisation 270
3.9 Review 284
Unit 4 Managing the Economy 301
Area of Study 1 Aggregate Demand Policies and Domestic Economic Stability
4 Aggregate demand policies and domestic economic stability 303
4.1 Overview 303
4.2 Definition and aims of budgetary policy 306
4.3 Sources of government revenue (receipts) 307
4.4 Types of government expenses (outlays) 312
4.5 The budget outcome 315
4.6 The stance of budgetary policy — is it expansionary or contractionary? 324
4.7 The roles of automatic and discretionary stabilisers in affecting the budget’s outcome and stance, and the impact on the level of government debt 327
4.8 The effect of budget initiatives on the government’s key domestic macroeconomic goals during the past two years 332
4.9 Strengths and weaknesses of using budgetary policy to achieve the government’s domestic macroeconomic goals and the affect on living standards 346
4.10 Definition and aims of monetary policy, and the role of the RBA 351
4.11 The role of open market operations in altering interest rates 354
4.12 Transmission mechanisms of monetary policy and their influence on the level of aggregate demand 357
4.13 The stance of monetary policy and how the RBA decides this 360
4.14 The focus of monetary policy over the past two years to help regulate aggregate demand and promote key domestic macroeconomic goals 364
4.15 Strengths and weaknesses of using monetary policy to achieve the government’s domestic macroeconomic goals and the affect on living standards 369
4.16 Review 372
Area of Study 2 Aggregate Supply Policies
5 Aggregate supply policies and domestic economic stability 391
5.1 Overview 391
5.2 Definition and aims of aggregate supply policies 393
5.3 How selected government budgetary policies can influence aggregate supply, domestic macroeconomic goals and living standards 399
5.4 How welfare and tax reform policies are designed to influence aggregate supply and living standards 422
5.5 Effect of immigration policies on the labour market and aggregate supply, and the way this influences the achievement of domestic macroeconomic goals and living standards 439
5.6 Strengths and weaknesses of using aggregate supply policies to achieve the Australian government’s domestic macroeconomic goals and better living standards 459
5.7 Review 462
End-of-year examination 477
Multiple-choice answers 481
Economics dictionary 485
Index 547
