3.3 Part 5: The influence of recent supply side conditions on economic growth

mikaela.farrugia
Mind Map by mikaela.farrugia, updated more than 1 year ago
mikaela.farrugia
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(Economics SAC 2) Mind Map on 3.3 Part 5: The influence of recent supply side conditions on economic growth, created by mikaela.farrugia on 03/23/2014.
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3.3 Part 5: The influence of recent supply side conditions on economic growth
1 Overview
1.1 affects the availability of resources, costs, profits, business closures and the ability and willingness of fir,s to produce goods and services.
1.2 Alters the productive capacity or sustainable speed limit at which AS and national output can grow.
1.3 mixture of more/less favourable conditions affecting eco growth
1.4 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.
1.5 Less favourable conditions might slow the rate of economic growth.
1.6 Supply Side conditions are
1.6.1 Changes in productivity.
1.6.2 Changes in interest rates banks charge businesses on borrowed credit
1.6.3 Changes in climatic conditions affecting production
1.6.4 Changes in the exchange rate for the Australian dollar
1.6.5 The existence of bottle necks in infrastructure.
1.6.6 Using the AD-AD diagram to show the effects of changing supply side conditions on economic growth
2 1. Changes in productivity.
2.1 affects the way resources are used and has an impact on the growth rate.
2.2 Strong rising productivity means the AS moves to the right and a faster sustainable rate of economy growth occurs.
2.3 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.
3 2. Changes in interest rates banks charge businesses on borrowed credit
3.1 influence business production costs and profits for firms that need to borrow credit for expansion.
3.2 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
3.2.1 boosted Aus long term sustainable rate of economic growth.
3.3 RBA raises interest rates this discourages firms to purchase new equipment or grow efficiency and capacity, slowing becoming growth
4 3. Changes in climatic conditions affecting production
4.1 Affects the level of rural production and GDP.
4.2 the drought slowed economic growth. These undermined our growth by destroying rural, mining, transport and tourist capacity.
4.3 Climate change can affect us in the future.
5 4. Changes in the exchange rate for the Australian dollar
5.1 can make Australian goods and services look more or less attractive or competitive overseas which making imports more attractive at home.
5.2 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.
5.3 Lower Australian dollar strengthens international competitiveness of local exporters.
6 5. The existence of bottle necks in infrastructure.
6.1 having adequate infrastructure such as road, rails, communications, power, water and education is a a key supply side conditions
6.1.1 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.
6.2 Vital for business expansion, keeping production costs low and growing efficiency.
6.3 State of the infrastructure effects the productive capacity and sustainable rate of economic growth.
6.3.1 Significant restrictions on the supply of these infrastructures has been caused by a lack of government funding.
7 6. Using the AD-AS diagram to show the effects of changing supply side conditions on economic growth
7.1 illustrates the effects of changing supply side conditions on the long term rate of economic growth
7.2 Improved supply side conditions reduce constraints on productive capacity and grow AS which increases our growth.
7.2.1 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.
7.3 favourable supply side conditions forces the AS line to move to the right and the economy grows.
7.4 Increased economic growth also increases our GDP and sets a new equilibrium
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