Why Is Australia A Mixed Economy
The Australian economy
Introduction
• Many factors influence…
Types of economies:
There are numerous economic systems, each operating…
1) Traditional economies are fashioned by the traditions, customs and beliefs which form the goods and products the society creates. The method of bartering and trading for goods and services derive from long-established patterns. This economy is found in rural and farm based third world countries with larger indigenous populations such as isolated tribes of the Amazon.
2) Command economy is an economy system in which the government retains control over all major aspects of the economy and means of production. Private enterprises are alleviated, giving the government power over the manufacturing and distribution …show more content…
process. Command economies are mainly associated with communist and socialist countries, e.g. communist Soviet Union.
3) Market economy is a capitalistic economic system in which economic decisions and pricing of goods and services are influenced only by the interaction of supply and demand between the consumer and businesses, with little government intervention.
4) Mixed economy features attributes of the market and command economy. The majority of the economic decisions in the market are made by individuals and the government doesn’t directly influence the private sector but emanates the economy from the money spent, in the form of taxes and borrowings from the private sector, and redistribution, grants and welfare. Most countries have mixed economies, occupied with varying degrees of government intervention.
Australia is considered a mixed economy as both government and the private sector have influence over the economy. The government has partial control over the economy; ensuring even distribution of income; providing goods and services e.g. Australian Post; and regulating the economy by creating micro and macroeconomic policies to manage and stabilize the economy. For example in 2009, in response to the GFC, the Rudd government implemented a stimulus package to combat inflation.
Characteristics of the Business …show more content…
Cycle:
The business cycle describes the cyclical fluctuations of economic activity. The Australian economy has experienced changing periods of high and low economy activity. There are four phases of the business cycle, each characterised by specific traits.
a. The expansion period, occurs when the economy grows and more people become prosperous. People make more money and the demand for both capital and consumer goods and services. In 2008-09, there was an increase of up to 28% rise wage and salary incomes compared to 2005-06. (ABS)
b.
The peak of a business cycle, occurs after a sustained expansion period. Prices for goods and services increase and workers often ask their employers for pay raises to meet the effects of inflation. Higher wages also increase costs, which triggers additional inflation, as higher wages mean higher costs to produce goods and services.
c. Contraction marks the end of expansion and the peak period. The continual effects of inflation begin to have a negative outcome on the economy. Businesses start reducing spending for production and employees may experience dismissals as the demand for goods and services decrease. During the GFC, unemployment in Australia increased from 4.1% in February 2008 to 5.8% in August 2009 (ABS, 2010).
d. A recession is a period of six months (two consecutive quarters) of negative economic growth that follows a contraction. The rates of decreasing goods and service result in a reduced GDP, sending income and production to its lowest point and unemployment to its highest. Economic growth is slowed, and if a recession becomes widespread and ongoing, it becomes a depression.
The rise and falls of the GDP in the business cycle can influence the quality of life in
Australia
Key Economic Indicators:
Key …
1. Inflation is increasing of the general prices of goods and services, causing money to lose its value. The mains causes of inflation are increases in the cost or materials including labour, demands of goods and services exceeding the output and increasing production costs from manufacturers and businesses. Inflation has fluctuated during different periods of economic activity, reaching higher levels during peaks of the business cycle. The highest peak of consumer price inflation was 4.4% in December 2008 as the period 2007 – 2008 saw a rise in the economy, due to fully employment and high economic growth. This meant, for example, goods and services costing $10, in 2007, would cost $10.44 in 2008.
Inflation rates influence our quality of life because it decreases the consumer’s purchasing power as rising prices mean paying more for goods and services than what they’re worth. Employees with incomes increasing at a slower rate than inflation, would have even lower buying power. On the other hand, inflation can be beneficial for the recipient of income inflation or asset inflation e.g. housing or stocks if in possession of that asset before price rises.
2. Interest rates are the annual costs of borrowing credit or the annual return on invested savings; the price of money. Interest rates are regulated by the Reserved Bank of Australia’s ‘monetary policy’, ensuring that inflation remains low and constant by increasing interest rates to slow the economy or decreasing interest rates to promote economic growth. Interest rates are changed based on key indicators including employment, inflation, consumer and business confidence, etc. During 2007 – 2008, the RBA was concerned about effects of inflation on the economy, as there was very low unemployment and very high economic growth. To moderate economic growth and inflation, the RBA gradually increased interest rates to 7.25% which lasted from April to August 2008. As the recession was reached on the business cycle and unemployment increase and economic growth reduced, the RBA reduced the interest rates over a considerable period to increase economic activity.
Interest rates influence our quality of life because they influence the consumer’s and their personal financial decisions. For example, if interest rates are low, the costing of living, business and investing are also low. Lower interest rates makes spending attractive and consumers become interested in borrowing money to pay for mortgages, cars, etc. which injects more money into the economy. This increases demand for goods and services, resulting in more job opportunities and economic expansion.
3. Consumer confidence measures the degree of optimism that consumers feel about the state of the economy based on their spending and savings. Consumer confidence is measured by the Consumer Sentiment Index, a survey of over 1200 Australian households. The Index consists of 5 component indexes reflecting the consumers’ evaluations of their personal financial situation over the past and coming year, anticipated economic conditions in the upcoming year and the next 5 years and buying power for major household items. An outcome above 100 indicates optimists outweigh pessimists.
Introduction
• Many factors influence…
Types of economies:
There are numerous economic systems, each operating…
1) Traditional economies are fashioned by the traditions, customs and beliefs which form the goods and products the society creates. The method of bartering and trading for goods and services derive from long-established patterns. This economy is found in rural and farm based third world countries with larger indigenous populations such as isolated tribes of the Amazon.
2) Command economy is an economy system in which the government retains control over all major aspects of the economy and means of production. Private enterprises are alleviated, giving the government power over the manufacturing and distribution …show more content…
process. Command economies are mainly associated with communist and socialist countries, e.g. communist Soviet Union.
3) Market economy is a capitalistic economic system in which economic decisions and pricing of goods and services are influenced only by the interaction of supply and demand between the consumer and businesses, with little government intervention.
4) Mixed economy features attributes of the market and command economy. The majority of the economic decisions in the market are made by individuals and the government doesn’t directly influence the private sector but emanates the economy from the money spent, in the form of taxes and borrowings from the private sector, and redistribution, grants and welfare. Most countries have mixed economies, occupied with varying degrees of government intervention.
Australia is considered a mixed economy as both government and the private sector have influence over the economy. The government has partial control over the economy; ensuring even distribution of income; providing goods and services e.g. Australian Post; and regulating the economy by creating micro and macroeconomic policies to manage and stabilize the economy. For example in 2009, in response to the GFC, the Rudd government implemented a stimulus package to combat inflation.
Characteristics of the Business …show more content…
Cycle:
The business cycle describes the cyclical fluctuations of economic activity. The Australian economy has experienced changing periods of high and low economy activity. There are four phases of the business cycle, each characterised by specific traits.
a. The expansion period, occurs when the economy grows and more people become prosperous. People make more money and the demand for both capital and consumer goods and services. In 2008-09, there was an increase of up to 28% rise wage and salary incomes compared to 2005-06. (ABS)
b.
The peak of a business cycle, occurs after a sustained expansion period. Prices for goods and services increase and workers often ask their employers for pay raises to meet the effects of inflation. Higher wages also increase costs, which triggers additional inflation, as higher wages mean higher costs to produce goods and services.
c. Contraction marks the end of expansion and the peak period. The continual effects of inflation begin to have a negative outcome on the economy. Businesses start reducing spending for production and employees may experience dismissals as the demand for goods and services decrease. During the GFC, unemployment in Australia increased from 4.1% in February 2008 to 5.8% in August 2009 (ABS, 2010).
d. A recession is a period of six months (two consecutive quarters) of negative economic growth that follows a contraction. The rates of decreasing goods and service result in a reduced GDP, sending income and production to its lowest point and unemployment to its highest. Economic growth is slowed, and if a recession becomes widespread and ongoing, it becomes a depression.
The rise and falls of the GDP in the business cycle can influence the quality of life in
Australia
Key Economic Indicators:
Key …
1. Inflation is increasing of the general prices of goods and services, causing money to lose its value. The mains causes of inflation are increases in the cost or materials including labour, demands of goods and services exceeding the output and increasing production costs from manufacturers and businesses. Inflation has fluctuated during different periods of economic activity, reaching higher levels during peaks of the business cycle. The highest peak of consumer price inflation was 4.4% in December 2008 as the period 2007 – 2008 saw a rise in the economy, due to fully employment and high economic growth. This meant, for example, goods and services costing $10, in 2007, would cost $10.44 in 2008.
Inflation rates influence our quality of life because it decreases the consumer’s purchasing power as rising prices mean paying more for goods and services than what they’re worth. Employees with incomes increasing at a slower rate than inflation, would have even lower buying power. On the other hand, inflation can be beneficial for the recipient of income inflation or asset inflation e.g. housing or stocks if in possession of that asset before price rises.
2. Interest rates are the annual costs of borrowing credit or the annual return on invested savings; the price of money. Interest rates are regulated by the Reserved Bank of Australia’s ‘monetary policy’, ensuring that inflation remains low and constant by increasing interest rates to slow the economy or decreasing interest rates to promote economic growth. Interest rates are changed based on key indicators including employment, inflation, consumer and business confidence, etc. During 2007 – 2008, the RBA was concerned about effects of inflation on the economy, as there was very low unemployment and very high economic growth. To moderate economic growth and inflation, the RBA gradually increased interest rates to 7.25% which lasted from April to August 2008. As the recession was reached on the business cycle and unemployment increase and economic growth reduced, the RBA reduced the interest rates over a considerable period to increase economic activity.
Interest rates influence our quality of life because they influence the consumer’s and their personal financial decisions. For example, if interest rates are low, the costing of living, business and investing are also low. Lower interest rates makes spending attractive and consumers become interested in borrowing money to pay for mortgages, cars, etc. which injects more money into the economy. This increases demand for goods and services, resulting in more job opportunities and economic expansion.
3. Consumer confidence measures the degree of optimism that consumers feel about the state of the economy based on their spending and savings. Consumer confidence is measured by the Consumer Sentiment Index, a survey of over 1200 Australian households. The Index consists of 5 component indexes reflecting the consumers’ evaluations of their personal financial situation over the past and coming year, anticipated economic conditions in the upcoming year and the next 5 years and buying power for major household items. An outcome above 100 indicates optimists outweigh pessimists.