Y E A R 1 2

economics
2 0 1 3
Tim Riley M. Ec Dip. Ed
2012 Tim Riley Publications Pty Ltd
DEDICATION
To the memory of Victor Argy
Professor of Economics, Macquarie University
2012 Tim Riley Publications Pty Ltd
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Cataloguing in Publication Data:
Riley, Tim
Year 12 Economics 2013
Includes index
For senior secondary school students
ISBN 978-0-9871628-6-1
1. Economics. 2. Macroeconomics
3. Economics - Problems, Issues 4. Economics - Australia.
330
2013 Tim Riley Publications ABN 30 063 689 412
Design and production by Creative Twist (02) 6585 6040 www.creativetwist.net.au
Printed by Ligare Pty Ltd, Riverwood, NSW.
CONTENTS
TOPIC 1: THE GLOBAL ECONOMY
Chapter 1: International Economic Integration 3
Te Global Economy and Economic Integration 3
Globalisation and Economic Integration 9
World Trade, Financial Flows and Foreign Investment 11
Technology, Transport, Communications and Labour 19
International and Regional Business Cycles 25
Changes in World Trade, Financial Flows and Foreign Investment 33
Chapter 2: Free Trade and Protection 39
Te Basis for Free Trade 39
Te Role of International Organisations Afecting Trade 44
Trading Blocs, Monetary Unions and Free Trade Agreements 51
Te Reasons for Protection 57
Te Methods and Efects of Protection 58
Chapter 3: Globalisation and Economic Development 67
Te Diferences between Economic Growth and Development 67
Te Global Distribution of Income and Wealth 69
Developing, Emerging and Advanced Economies 76
Te Efects of Globalisation on Economic Development 78
Case Study of the Infuence of Globalisation on China 84
TOPIC 2: AUSTRALIAS PLACE IN THE GLOBAL ECONOMY
Chapter 4: Australias Trade and Financial Flows 101
Te Value, Composition and Direction of Australias Trade and Financial Flows 101
Te Structure of Australias Balance of Payments 110
Recent Trends in Australias Balance of Payments 116
Chapter 5: Exchange Rates 127
Te Measurement of Relative Exchange Rates 127
Factors Afecting the Demand and Supply of Australian Dollars 130
Floating, Fixed and Managed Exchange Rate Systems 132
Changes in Exchange Rates: Depreciation and Appreciation 137
Reserve Bank Intervention in the Foreign Exchange Market 139
Te Economic Efects of Exchange Rate Movements 142
Chapter 6: Australias Trade Policy 149
Australias Policies Towards Protection 149
Australias Policies Towards Free Trade 154
Te Implications of Reducing Australian Protection 158
Te Implications of International Protection 160
TOPIC 3: ECONOMIC ISSUES
Chapter 7: Economic Growth 171
Te Components of Aggregate Demand 172
Te Measurement of Economic Growth 177
Te Sources and Efects of Economic Growth 179
Increases in Aggregate Supply and Economic Growth 181
Trends in the Australian Business Cycle 183
Policies to Promote Economic Growth 185
Chapter 8: Unemployment 191
Te Measurement of Unemployment 191
Recent Trends in Unemployment 193
Te Types, Causes and Efects of Unemployment 197
Policies to Reduce Unemployment 203
Chapter 9: Ination 211
Te Measurement of Infation 211
Recent Trends in Infation 212
Te Causes of Infation 214
Te Negative and Positive Efects of Infation 218
Policies to Reduce Infation 219
Chapter 10: External Stability 225
Te Measurement of the Current Account Defcit 225
Trends in the Current Account Defcit, Net Foreign Debt and Liabilities 230
Te Causes and Efects of the Current Account Defcit and Net Foreign Debt 231
Policies to Reduce the Current Account Defcit 236
Chapter 11: Distribution of Income and Wealth 241
Measurement of the Distribution of Income 241
Te Sources of Income and Wealth 242
Trends in the Distribution of Income and Wealth 245
Dimensions in the Distribution of Income 248
Te Economic and Social Costs and Benefts of Inequality 249
Policies to Reduce Income and Wealth Inequality 251
Chapter 12: Environmental Sustainability 257
Ecologically Sustainable Development (ESD) 257
Private and Social Costs and Benefts 259
Environmental Issues 262
Environmental Policies 266
TOPIC 4: ECONOMIC POLICIES AND MANAGEMENT
Chapter 13: Economic Objectives and Policies 277
Economic Growth and the Quality of Life, Full Employment, Price Stability 277
and External Stability
Environmental Sustainability and an Equitable Distribution of Income 279
Potential Conficts among Economic Objectives 280
Macroeconomic Policies and the Stabilisation of Aggregate Demand 280
Chapter 14: Fiscal Policy 287
Te Federal Government Budget 287
Possible Budget Outcomes 288
Te Economic Efects of the Budget 292
Recent Trends in Australian Fiscal Policy 301
Chapter 15: Monetary Policy 311
Te Goals or Objectives of Monetary Policy 311
Te Implementation of Monetary Policy 313
Te Economic Impact of Changes in Interest Rates 316
Recent Trends in Monetary Policy 318
Te Transparency, Accountability and Efectiveness of Monetary Policy 322
Chapter 16: Microeconomic Policy 329
Te Rationale for Microeconomic Policies 329
Structural Change and Microeconomic Policies 332
Reforms in Product Markets 333
Reforms in Factor Markets 335
Regulation, Deregulation and Competition Policy 337
Te Costs and Benefts of Microeconomic Reform 346
Chapter 17: Labour Market Policy 351
Te Role of the National and State Industrial Relations Systems 351
Evolution of the National Industrial Relations System 352
Te Role of Institutions in the Current Industrial Relations System 364
Evaluation of the Fair Work Act 2009 367
Evaluation of the Current Industrial Relations System 369
Chapter 18: Australias Recent Economic Performance 377
Te Limitations of Economic Policies 377
Economic Growth and the Quality of Life 380
Full Employment 381
Price Stability 382
External Stability 383
Te Distribution of Income and Wealth 384
Environmental Sustainability 385
Glossary of Terms 392
Index 402
INTERNATIONAL WEBSITE ADDRESSES 8
Asia Pacifc Economic Co-operation (APEC) www.apec.org.sg
Association of South East Asian Nations (ASEAN) www.asean.org
Bank for International Settlements (BIS) www.bis.org
European Union (EU) www.europa.eu.int
International Monetary Fund (IMF) www.imf.org
North American Free Trade Agreement (NAFTA) www.nafta-sec-alena.org
Organisation for Economic Co-operation and Development (OECD) www.oecd.org
Organisation of Petroleum Exporting Countries (OPEC) www.opec.org
United Nations Conference on Trade and Development (UNCTAD) www.unctad.org
World Bank (IBRD) www.worldbank.org
World Trade Organisation (WTO) www.wto.org
AUSTRALIAN WEBSITE ADDRESSES 8
Australian Bureau of Statistics (ABS) www.abs.gov.au
Australian Competition and Consumer Commission (ACCC) www.accc.gov.au
Board of Studies NSW (BOS) www.bos.nsw.edu.au
Department of Climate Change and Energy Efciency www.climatechange.gov.au
Department of Education, Employment and Workplace Relations (DEEWR) www.deewr.gov.au
Ofce of Environment and Heritage www.environment.nsw.gov.au
Department of Foreign Afairs and Trade (DFAT) www.dfat.gov.au
Department of Treasury www.treasury.gov.au
Fair Work Australia (FWA) www.fwa.gov.au
Fair Work Ombudsman (FWO) www.fwo.gov.au
Foreign Investment Review Board (FIRB) www.frb.gov.au
Productivity Commission (PC) www.pc.gov.au
Reserve Bank of Australia (RBA) www.rba.gov.au
UBS HSC Economics Website www.ubs.com/hsceconomics