Real World Examples IB ECONOMICS
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Subsidies
Price Ceiling (max price)
Negative Consumption Externality
Negative Production Externality
Taxing Negative Externalities
Limitation of Carbon Tax
Cap & Trade Policy
Reasons for trade
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China subsidising solar panel production
Australian Government in 2014 subsidised the mining and explo-
ration of coal by energy companies by $4 billion AUD.
China: to produce technologically advanced products and under-
cut foreign manufacturers has quadrupled exports in 16 years
South Korean government subsidizing domestic fuel.
U.S. 1970 petrol max price
Vietnam's price ceiling on milk products, United States' price
ceiling on rents.
New York price ceiling on rent for housing and apartments.
Cars in London vs Congestion Charge
Consumption of alcohols in South Korea (ie. many car accidents
leading to deaths, injuries - making loud noises at late night).
Smoking
Thames polluted = Property Rights granted to Thames Water
Coase Theorem
Pigouvian/Fat/Carbon Tax
BC - $30 per tonne of CO2
The Carbon Tax implemented by the Gillard Government in Aus-
tralia in 2012. but later abolished
Harms Economic Growth (US and China refuse)
UN Kyoto Protocol 2000 (150 countries, US didn't ratify)
Different Factor Endowments: China imports minerals, natural
resources, metals, and energy resources from Australia.
Increased Welfare - specialization and trade allow countries to
gain a higher level of consumption than they would do domestical-
ly and this leads to increased welfare and higher living standards.
Real World Example: Japan is an excellent example of how the
trade increased welfare and higher living standards.
Economies of Scale - with specialization and production on a
larger scale than may be possible domestically, a country may
be able to gain more economies of scale. This will lead to lower
average costs and benefit consumers through lower prices.
Real World Example: China gained the economy of scale.
Diversity of Choice - trade enables people to access and approach
diverse and variety of goods and services that may not be avail-
able only in the domestic market.
Real World Example: Korean consumers are able to buy Apple
products from US and have wide variety of choice along their own
electronics manufacturers Samsung and LG.
Increased Competition - Increased competition helps domestic
industries to have improvements in productivity and efficiency. In
addition, it gives domestic firms better incentive and improve their
products to compete against foreign firms.
Real World Example: As Apple introduced the iPhone, Korean
phone manufacturers such as Samsung and LG began to make
their own smart phones to counter the increasing Apple influence
on Korean domestic market.
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Quota
Fixed Exchange Rate
Managed Floating Rate
Contractionary Monetary Policy
Australia's Unemployment
Aggregate Demand - Housing
Aggregate Demand - Westpac
Aggregate Demand - Chinese consumers
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Engine for Growth - increased trade helps domestic economies to
grow and make improvements in living standards of the people.
Real World Example: Korea experienced enormous economic
growth as they initiated trade with other countries. As a result, the
HDI, which indicates the living standards, increased ranking 12th
in the world.
Eu quota on 20% imported Japanese cars
North Korea has a fixed exchange rate. However, the fixed ex-
change rate does not accurately reflect the market value of the
currency as the market value for the currency is often 20 times
lower than the fixed value for the currency.
China is implementing dirty float system for the exchange rate. It
sets the maximum value to the exchange rate in order to artificially
depreciate its currency and therefore export more to the world.
Chile became the third Andean nation in just over a month to raise
interest rates as a slump in local currencies pushed up inflation
across the region. The central bank indicated further increases
will follow.
2015 - October
Australia's jobless rate remained steady at 6.2 per cent in Sep-
tember, despite a small decrease in the actual number of people
employed, according to the Australian Bureau of Statistics.
The ABS said on Thursday the decrease of 5100 in the labour
force was a result of lower "male full-time and part-time employ-
ment and female full-time employment, with the largest decrease
in male full-time employment".
It seems like only yesterday that the biggest threat to the Aus-
tralian economy was slowing growth in China, by far our largest
trading partner, and the related decline in mining-related invest-
ment and commodity prices.
However, record low interest rates have fuelled robust demand
from first home-buyers and buy-to-let and buy-to-flip investors.
This, in turn, has encouraged developers to build new apartments
and houses, and consumers to spend on furniture and other
household goods and services. The issue is that demand for new
and existing housing is slowing
This, in turn, may affect many of the businesses that are supposed
to be benefiting from record low interest rates.
With the commodity boom well and truly over, Australia can ill
afford an abrupt end to the housing boom.
IN a shock move, Westpac today said it was raising its variable
mortgage rates next month by 0.2 percentage points to 5.68 per
cent.
WHILE global financial markets are in turmoil as investors contin-
ue to fret about China's apparent economic slowdown, consumers
in the country are increasingly upbeat.
China's faltering industrial profitability and output have caused
financial market anxiety.
The Chinese economy remains a key source of concern for global
investors. Once again though, the surveyed opinions of China's
consumers are showing a steady improvement.
Urban Chinese consumers seems oblivious to the tirade of neg-
ativity that surrounds China at the moment
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Monetary Policy - US
China's GDP
Unemployment/Trade Agreements - Australia's Car Industry
Australian Exports - Beef
3 / 11
THE US Federal Reserve has opted to keep rates on hold at the
end of its eagerly awaited September meeting.
Low inflation its major concern.
"Inflation is anticipated to remain near its recent low level in the
near term" central bankers said in a statement.
"But the committee expects inflation to rise gradually toward 2 per
cent over the medium term as the labour market improves further
and the transitory effects of declines in energy and import prices
dissipate."
"The committee judged it appropriate to wait on further indica-
tors... to bolster its confidence that inflation would rise to 2 per
cent over the medium-term.
"The collapse in equity trading activity will also have produced a
sizeable drag in financial-sector output growth last month.
"But the desire to keep growth close to the annual 'about 7 per
cent' target means that growth probably won't be shown to have
slowed by much,"
- Australia's 90-year history of assembling and building automo-
biles is coming to an end.
- Now a debate is raging about whether the government should
once again stretch its financial assistance - which has already
run to billions of dollars in the past two decades - to the broader
industry as they struggle for survival in the void left behind.
- But the opposition, industry experts and academics argue the
funding should run until 2020/21, its original legislated end, and be
broadened to give businesses within the automotive supply chain
a chance to diversify.
- The Andrews' Labor government in Victoria - where about 55 per
cent of Australia's automotive workers live - is concerned.
- MNC Bosch is looking to close down "The challenge in a multina-
tional is that you are not just competing with your typical external
competitors. You're competing for capital investment from a parent
who can invest pretty much anywhere in the world. Australia is not
at the front of mind for the group when they consider where to
make investments."
- Government estimates the closures will trigger a net loss of just
under 200,000 jobs, with about $29 billion wiped off Australia's
gross domestic product - a gauge for the economy's health.
BUT
- Treasurer Scott Morrison said international trade agreements,
including the ones Australia has signed with Korea, Japan and
China, as well as the 12 nation Trans-Pacific Partnership would
help fuel Australia's next wave of economic prosperity.
- A $155 million 'growth fund', which was announced in May 2014,
was helping automotive workers find new jobs.
Beef is being hailed as the new iron ore, as Indonesia and the
rapidly expanding Chinese market drive up demand for our cattle.
And that demand — coupled with favourable grazing conditions
— is turning Top End livestock stations into multi-million dollar
businesses.
It's even been tipped to be as big as the minerals boom.
---
Australians generally consider Brahman beef too tough to eat —
as Wooley points out, any attempt to barbecue it turns it as tough
as leather in moments.
But Asian consumers love it for slow cooking.
Australia's wine exports have grown at their fastest rate since late
2007 as the twin forces of a falling Australian dollar and growing
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demand from China bring more optimism to the $4 billion wine
industry.

Export sales to China in the 12 months ended September 30

soared by 47 per cent to $313 million, making it Australia's
third-largest export destination by value behind the United States
and United Kingdom.
Australia's Exports - Wine
The Australian dollar has fallen more than 20 per cent in the
past 15 months, and now appeared to be holding around the low
US70c mark and this was important. (more certainty)

But Australia's exports into that country are still at less than a third
of those from France.
AS SOUTH Australia's economy continues to struggle, business
leaders are urging the government to act in order to provide a
much needed jump-start to the state's jobs sector.

Organisations urging the government to sell off SA Water in order

to avoid a "major economic depression"
Ways to increase employment - SA
SA Water contributed $300 million a year to the state's economy
but a sell-off would add significantly more value.

But SA Treasurer Tom Koutsantonis is not a supporter of the idea

and said "unlike the Liberal Party" he would not entertain the idea
of selling off SA Water to an interstate or overseas monopoly.
Singapore's research & development (R&D) efforts have paid off
with startups more than doubling in the last decade from 24,000
in 2005 to 55,000 last year.

Among other R&D efforts, Mr Lee (PM) added that the Agency for
Science, Technology and Research (A*Star) has catalysed more
than $1 billion investments.

These R&D efforts have also led to improvements in the daily lives
R&D in Singapore/Sustainability/Improvements in the standards
of Singaporeans, such as ongoing research projects studying
of living
how urban design can reduce urban heat or the Smart Nation
programme which will see how technology can be applied in the
areas of transportation, healthcare and education.

This will enable an integration of all the capabilities needed to

support the future of manufacturing efforts.

Self-driving vehicles, if developed successfully, could solve com-

mute problems and ease congestion on the roads.
Double edge sword, positive effects may occur, but negative con-
sequences loom large.

1. Singapore's exports become cheaper, which can serve to boost

demand
2. But Singapore's imports simultaneously become more expen-
sive, which means higher prices for importers.
3. Singapore imports almost everything it uses, raw materials
The consequences of weakening the Singapore dollar
become more expensive.
4. Higher imported inflation else eats into household incomes,
which in turn impinges on domestic demand. Ultimately, that ad-
versely affects growth.
5. Because interest rates rise as expectations of a weaker Singa-
pore dollar increase businesses and households take a hit from
higher borrowing costs.

4 / 11
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Malaysia's Economy
Japan's Economy
The consequences of hangovers
Britain and China's relationship - trade
5 / 11
FURTHERMORE, a weaker Singapore dollar may not provide
must boost to exports either, with other countries devaluing their
currencies aggressively, Singapore's exports still seem expen-
sive, at least comparatively.
THEREFORE, growth should come from more hard-earned ways
- Economic restructuring
- Technological advancements
- Higher productivity
Malaysia's ringgit fell to a one-week low on Monday (Oct 19)
ahead of Friday's budget as investors focus on what measures the
government will take to shore up the economy amid a collapse in
commodities and slowing global growth.
"The expectations are a bit high about whether there's a macro
policy mix to help support the economy," "There's a need to
support the economy and that may have an impact on the budget
deficit."
THIS COULD BE DUE TO PALM OIL:
Malaysia is Asia's only major net oil exporter and is also the
world's second-biggest producer of palm oil, which despite recov-
ering some ground from a 2015 low in August is still down 6 per
cent from this year's peak in September. The government derives
about 22 per cent of its income from energy-related sources.
Japan's economy was expected to continue recovering moderate-
ly even though the slowdown in emerging markets was weighing
on exports and output.
The BOJ has kept monetary policy steady since expanding its
massive stimulus programme in October last year. With inflation
having ground to a halt on slumping oil prices, the central bank
remains under pressure to ease again ahead of a rate review next
week.
In Australia, hangovers are causing 11.5 million "sick days" a year
at a cost of $3 billion to the Australian economy, recent research
suggests.
The American cost estimate includes spending on health care as
well as the economic toll of lost productivity, car crashes, crime,
and deaths attributable to excessive alcohol consumption.
This friendship is a visionary and strategic choice that fully meets
Britain's own long-term interest.
The Chinese economy is slowing down and it is changing its
nature from an investment-driven growth economy to an economy
that has to look to invest in other places," he said. "Chinese
businesses are very eager to invest in other countries and some
of the best export products that China has to offer are to do with
infrastructure, high-speed trains, energy things like that and these
are exactly the things that the UK needs.
As well as securing billions of pounds of Chinese investment,
Britain hopes to advance efforts to turn London into a key trading
centre for China's currency, the renminbi, and to boost trade with
the world's second largest economy.
During a tour of China last month, chancellor George Osborne
unveiled plans to make it Britain's second biggest trade partner
by 2025.
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British steel left weak by China
Is the UK marginalised in the EU?
When Gas Becomes Cheaper, Americans Buy More Expensive
Gas
However there are some concerns about China's human rights'
issues.
Nevertheless, it's a risky policy but it is certainly one that in terms
of trade relations could be very beneficial
About half of the 1.6bn tonnes of steel made globally comes from
China: firms operating in the UK just cannot compete
In the past 18 months, China has flooded the market with cheap,
subsidised steel as its economic growth has slowed. Beijing wants
to grab whatever foreign cash it can on global markets by selling
its products at a knockdown rate.
Director of the industry body UK Steel, said: "Chinese steelmakers
are fully subsidised by the Chinese government and their regions."
Ministers insist they are powerless to hold back the rising tide of
Chinese metal, noting that the government is bound by EU rules
which prevent the state intervening in such matters.
Tata confirmed on Tuesday that it is cutting almost 1,200 jobs as
part of a radical shakeup of its long products division, which makes
steel for the rail and construction sectors.
One key issue in the debate about whether the UK should remain
in or leave the EU is how far the UK is currently marginalised in
Europe. As Nigel Lawson put it in the Times in May 2013: "While
never 'at the heart of Europe' ... we are now becoming increasingly
marginalised as we are doomed to being consistently outvoted by
the eurozone bloc."
Overall, using the best available data on EU decision-making,
there is strong evidence that on average the UK has not been
marginalised in the making of EU laws. The UK government has
been closer to final policy outcomes than most other governments.
This is also true for policy issues the UK government has been
particularly concerned about, although there is some evidence
that on certain policy issues, including internal market and trade,
the UK has been less content with final EU decisions.
When gas prices fall, Americans reliably do two things that don't
make much sense.
They spend more of the windfall on gasoline than they would if the
money came from somewhere else.
And they don't just buy more gasoline. They switch from regular
gas to high-octane.
Americans, in short, have not been behaving like the characters
in economics textbooks.
There is, however, a pretty good explanation for this kind of
pattern. Researchers have found that people treat money as
earmarked for particular kinds of spending, a tendency behavioral
economists call "mental accounting." If someone is buying rounds
at the neighborhood bar, people tend to treat the money they didn't
spend as "beer money," and sooner or later they tend to spend it
disproportionately on beer. As a result, they end up drinking more
beer than they had originally intended.
Professors Hastings and Shapiro showed that households ad-
justed their gas consumption much more sharply in response to
changes in gas prices than in response to equivalent changes in
6 / 11
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overall income.

Moreover, this behavior was prevalent: 61 percent of the house-

holds made at least one irrational gas purchase. People "treat
changes in gasoline prices as equivalent to very large changes
in income when deciding which grade of gasoline to purchase,"
they wrote.
America's affection for regular soda, as I reported this month, is
waning.

It's true that as Americans come to crave more beverage variety,

new types of drinks are becoming more popular. Those growing
categories include some with a lot of sugar, like energy drinks,
sports drinks and ready-to-drink coffee drinks. But sales of those
products have not grown enough to compensate for the large
declines in soda, a much more popular category.

Sales data at the household level also show declines in calories

Energy Drinks Are Popular, but Not Enough to Replace Soda from beverages. Most of the change comes from soda and fruit
drinks.

It's possible that energy and sports drinks could continue to grow
and one day replace all the soda that people stopped drink-
ing. That's part of the reason the big beverage companies are
investing so heavily in the new categories. But, for now, those
new drink types are small enough that the decline in soda has
real meaning for many people's diets. And the industry has an
incentive not to oversell its most sugary products: The biggest
beverage companies have pledged to reduce overall calories in
the products they sell by 20 percent in the next 10 years.
Pity the bolívar, Venezuela's currency, named after its indepen-
dence hero, Simón Bolívar. Even some thieves do not want it
anymore.

The eagerness to dump bolívars or avoid them completely shows

the extent to which Venezuelans have lost faith in their economy
and in the ability of their government to find a way out of the mess.

A year ago, $1 bought about 100 bolívars on the black market.

These days, it often fetches more than 700 bolívars, a sign of how
thoroughly domestic confidence in the economy has crashed.

The International Monetary Fund has predicted that inflation in

Venezuela will hit 159 percent this year, and that the economy will
Few in Venezuela Want Bolívars, but No One Can Spare a Dime shrink 10 percent, the worst projected performance in the world.

Even as the country's income has shrunk with the collapsing price
of oil — Venezuela's only significant export — and the black mar-
ket for dollars has soared, the government has insisted on keeping
the country's principal exchange rate frozen at 6.3 bolívars to the
dollar.

Mr. Maduro blames an "economic war" waged by his enemies, for-

eign and domestic, for the problems. But most economists say the
problems are caused by the fall in oil prices and the government's
policies, including strict controls on prices and foreign exchange
for imports.

Today, the bolívar is anything but strong.

"Right now, the wealthy pay too little," Hillary Rodham Clinton said
at this week's Democratic debate in Las Vegas, "and the middle
class pays too much."
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Raising their total tax burden to, say, 40 percent would generate
about $157 billion in revenue the first year. Increasing it to 45
percent brings in a whopping $276 billion. Even taking account of
state and local taxes, the average household in this group would
still take home at least $1 million a year.

That would more than cover, for example, the estimated $47
What Could Raising Taxes on the 1% Do? Surprising Amounts
billion cost of eliminating undergraduate tuition at all the coun-
try's four-year public colleges and universities, as Senator Bernie
Sanders has proposed, or Mrs. Clinton's cheaper plan for a
debt-free college degree, with money left over to help fund uni-
versal prekindergarten.

"Most economists today would agree that raising taxes modestly

would bring in more revenue"
Asian exporters starting to benefit from US Christmas shopping
demand, helped by iPhone.

It's never too early to start your Christmas shopping, and Asian
nations are starting to benefit. Exports from the region are recov-
Asian exporters ering as demand from the US and other developed economies
picks up.

Apple Inc's iPhone 6S release in September gave Taiwan's ex-

ports a significant boost as its communication products expanded
37.3 percent month-on-month.
As China weakens, recession stalks North Asia.

As China undergoes a painful rebalancing of an economy that

accounts for 16 percent of global GDP - it has experiences its
Asian economies leading to a recession? weakest growth rate since the global financial crisis.

Without a doubt, as long as China remains in a very soft spot ...

it's natural that North Asia, which is very highly oriented to China's
market, whether directly or as a conduit, also takes a knock
Australia's CPI and wage growth Wage growth is higher that CPI (note that CPI is low)
Today's inflation numbers were so low, they took the market by
surprise.

They've also put more pressure on the Reserve Bank to cut

Why is Australia's CPI low? interest rates when it meets next week on Melbourne Cup Day.

Wages are weak, so most domestic costs are subdued, and

there's some pressure coming from the lower exchange rate, so
everyone was braced for underlying inflation to be modest.
Australia's GDP has expanded by 3.1% in the 2nd quarter of 2014
compared to the same quarter in 2013
Economic Growth
New Zealand: 0.9% growth in GDP
Tariffs US raising tarffs on Chinese solar panels
Smoking in Australia around children = second hand smoke =
Negative Externality of Consumption health issues = taxing on government provided health care /
driving a car = pollution
Low Interest Rates Japan = 0% (example of Zero Interest Rate Policy)
Progressive Tax Rates Australia = ~49% for top income earners
Floating Exchange Rate 1GBP = 1.84AUD (October, 2014)
Centrally Planned Economy Communism = Russia up until 1991

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Monopoly (competitive branding)
Oligopoly (more desirable)
Limitations of Carbon Tax
Perfect Competition
Monopolistic Competition
Persuasion to Limit Negative Externalities
GDP
Deflation
Inflation
Free Trade Agreements
Protectionist Policies
Legal barriers to entry
Cyclical unemployment
Positive Production Externality
Advertizing/Persuasion to limit Negative Externalities
Low interest rates
Unemployment rate
Expansionary Fiscal Policy
VERs (Voluntary export restraint)
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Space research (within countries) = NASA in the US
Australia post, possibly Bunnings
Kellogg cereals (great variety)
astro TV
Music companies = Four music companies control 80% of the
US market - Universal Music Group, Sony Music Entertainment,
Warner Music Group and EMI Group
Computer makers (Apple, Microsoft) OPEC
Coles and Woolworths
Healthcare systems
Harms economic growth (US and China refuse)
Fruit and vegetables
Cabbages, Carrots
Mechanics, books, restaurants, food court
Provide cheap public transport (Queensland recently decreased
public transport fares by 5%)
Australia = 1.561 trillion USD (2013)
Sweden = prices fell by 0.4pc in March 2014
Zimbabwe = annual inflation rose in May 2008 to 1,063,572 per
cent
Australia signed a FTA with Korea in April 2014
Russia recently raised duties on second-hand car imports to
protect their domestic industry
Ownership to key resources = Alcoa in 1930's, aluminium produc-
tion
The Great Depression of the 1930's, the unemployment rate
surged as high as 25%.
Research and development- developing new technologies that
benefit society or can be used by society.
Switching to public transport, less smoking, changing to greener
companies
Japan (0% - 2016)
Hovering around 5-6% in Australia 2016
Hovering around 8% in UK 2011
Failure of expansionary fiscal policy in Greece.
However, it may not always achieve its intended effect. For ex-
ample, consider the situation of Greece. Any reduction in tax
would probably not lead to increased consumer spending, as
people would be more inclined to save than spend in a recession.
Investment would also be highly doubtful as it requires business
confidence, and Greece simply doesn't have that from it's in-
vestors. Also, government spending requires the government to
have substantial funds - or it would require borrowing money. This
could exacerbate an already worsening situation. Etc.
Following the end of the FMA, EU and US asked China to restrict
its textile exports.
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In Greece, because the country runs such a large budget deficit,
it cannot afford to prioritise on boosting AD because the cost of
further increasing their budget deficit is too high. Therefore, they
are going against expansionary fiscal policy ( therefore increasing
Expansionary fiscal policy tax, decreasing govt spending during a time of recession) and it
has benefited them :
Greece budget deficit 2009: 15% of GDP
2010: 11% of GDP
2011: 8%
Privatizations (making government businesses private) Telstra, Qantas, Commonwealth bank, Public Transport
Nationalisations (making private businesses government owned) 1946- The Bank of England was nationalised.
1973- US oil crisis. The 1973 oil crisis began in October 1973
when the members of the Organization of Arab Petroleum Ex-
porting Countries proclaimed an oil embargo (ban on trade). By
the end of the embargo in March 1974, the price of oil had risen
Stagflation (increase in inflation and increase in unemployment from US$3 per barrel to nearly $12 globally; US prices were
simultaneously) significantly higher. The embargo caused an oil crisis, or "shock",
with many short- and long-term effects on global politics and the
global economy. However, this spike in oil prices meant that wages
could not keep up, and people lost their jobs as there was very
little supply and demand of oil because of the spike in price.
Indirect Tax GST, Excise, VAT, Luxury, Customs Duty
Social Welfare Australia: Centrelink
Negative Externality South Africa: Electricity
Positive Externality Singapore: Increased Accessibility to Education
UK: car firms entering into selective and exclusive distribution
Abuse of Monopoly Power
networks to keep prices high
GDP Russia: $14 611.7 billion USD
GDP per Capita Nepal: $694.10 billion USD
Low UE Malaysia: 3.4%
High UE Greece: 23.40%
Low and Stable Rate of Inflation Belgium: 2.2%
High Inflation Brazil: 9%
Stagflation Worldwide: GFC
Inequity of DOI Chile: 0.5
Expansionary FP America: American Recovery and Reinvestment Act 2009
Contractionary FP Germany: Debt Brake 2009
- India min wage ---- 118 rupees per day

Australian min wage - $17.70 per hour

Price floor (Minimum Price)
Minimum wage laws in Australia = $16.87 an hour
Minimum Wage laws in the UK

France: domestic carbon price floor

Eg. Vaccinations (NHS subsidised prescriptions)/ Hybrid cars/
Positive Consumption Externality
Educations
Limitation of switching to biofuel Conflict with food (Brazil uses 25% ethanol in gasoline)
Following the end of the FMA, EU and US asked China to restrict
VERs
its textile exports.
1.5 dollars - 1 pound
Exchange rates
1 AUD= approx 0.7 USD
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6.3 Chinese Yuan to the dollar

UK 2011 1.9% - Aiming to be in surplus by 2013
Current Account Deficit
Australia has a current account deficit of $15,535 million AUD
The manufacturing industry, for example, has been in significant
decline in the United States over the last few decades. The rise of
the service economy, and then the information economy, has been
filling the vacuum. However, the skills needed in manufacturing
are not very similar to the skills needed in a service or information
economy, which require a significant amount of education and
technological knowledge and skills. Consequently, we see a lot of
people losing jobs as manufacturing leaves the United States, and
these people don't have the skills to qualify for the jobs that are
Structural unemployment replacing the manufacturing jobs. This is an example of structural
unemployment.

The manufacturing industry, for example, has been in significant

decline in Australia over the last few years. As Car manufacturers
such as Ford, Toyota, Holden and Mitsubishi have stopped man-
ufacturing in Australia, this means that manufacturing skills are
less demanded whilst other jobs requiring different skills are more
demanded. This means that structural unemployment increases
for those previously in manufacturing jobs.
Because the country runs such a large budget deficit, it cannot
afford to prioritise on boosting AD because the cost of further
increasing their budget deficit is too high. Therefore, they are going
Expansionary fiscal policy - which govts go against it and imple- against expanisonary fiscal policy (increasing tax, decreasing
ment austerity measures: GREECE govt during a time of recession) and it has benefited them :
Greece budget deficit 2009: 15% of GDP
2010: 11% of GDP
2011: 8%

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