Y E A R

1 2

economics
2014

Tim Riley M. Ec Dip. Ed

2013 Tim Riley Publications Pty Ltd

DEDICATION
To the memory of Victor Argy
Professor of Economics, Macquarie University

2013 Tim Riley Publications Pty Ltd

Except as permitted under the Australian Copyright Act no part of this publication may be reproduced,
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Tim Riley Publications Pty Ltd
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Cataloguing in Publication Data:

Riley, Tim

Year 12 Economics 2014

Includes index
For senior secondary school students
ISBN 978-0-9875923-0-9

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
9
11
19
25
33

The Global Economy and Economic Integration

Globalisation and Economic Integration
World Trade, Financial Flows and Foreign Investment
Technology, Transport, Communications and Labour
International and Regional Business Cycles
Changes in World Trade, Financial Flows and Foreign Investment

Chapter 2: Free Trade and Protection

The Basis for Free Trade

The Role of International Organisations Affecting Trade
Trading Blocs, Monetary Unions and Free Trade Agreements
The Reasons for Protection
The Methods and Effects of Protection

Chapter 3: Globalisation and Economic Development

The Differences between Economic Growth and Development

The Global Distribution of Income and Wealth
Developing, Emerging and Advanced Economies
The Effects of Globalisation on Economic Development
Case Study of the Influence of Globalisation on China

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39
44
51
57
58

67
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76
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84

TOPIC 2: AUSTRALIAS PLACE IN THE GLOBAL ECONOMY

Chapter 4: Australias Trade and Financial Flows

The Value, Composition and Direction of Australias Trade and Financial Flows
The Structure of Australias Balance of Payments
Recent Trends in Australias Balance of Payments

Chapter 5: Exchange Rates

The Measurement of Relative Exchange Rates

Factors Affecting the Demand and Supply of Australian Dollars
Floating, Fixed and Managed Exchange Rate Systems
Changes in Exchange Rates: Depreciation and Appreciation
Reserve Bank Intervention in the Foreign Exchange Market
The Economic Effects of Exchange Rate Movements

Chapter 6: Australias Trade Policy

Australias Policies Towards Protection

Australias Policies Towards Free Trade
The Implications of Reducing Australian Protection
The Implications of International Protection

101
101
110
116

127
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142

149
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154
158
160

TOPIC 3: ECONOMIC ISSUES

Chapter 7: Economic Growth

The Components of Aggregate Demand

The Measurement of Economic Growth
The Sources and Effects of Economic Growth
Increases in Aggregate Supply and Economic Growth
Trends in the Australian Business Cycle
Policies to Promote Economic Growth

Chapter 8: Unemployment

The Measurement of Unemployment

Recent Trends in Unemployment
The Types, Causes and Effects of Unemployment
Policies to Reduce Unemployment

Chapter 9: Inflation

The Measurement of Inflation

Recent Trends in Inflation
The Causes of Inflation
The Negative and Positive Effects of Inflation
Policies to Reduce Inflation

Chapter 10: External Stability

The Measurement of the Current Account Deficit

Trends in the Current Account Deficit, Net Foreign Debt and Liabilities
The Causes and Effects of the Current Account Deficit and Net Foreign Debt
Policies to Reduce the Current Account Deficit

Chapter 11: Distribution of Income and Wealth

Measurement of the Distribution of Income

The Sources of Income and Wealth
Trends in the Distribution of Income and Wealth
Dimensions in the Distribution of Income
The Economic and Social Costs and Benefits of Inequality
Policies to Reduce Income and Wealth Inequality

Chapter 12: Environmental Sustainability

Ecologically Sustainable Development (ESD)

Private and Social Costs and Benefits
Environmental Issues
Environmental Policies

171
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191
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211
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225
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236

241
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257
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TOPIC 4: ECONOMIC POLICIES AND MANAGEMENT

Chapter 13: Economic Objectives and Policies

Economic Growth and the Quality of Life, Full Employment, Price Stability
and External Stability
Environmental Sustainability and an Equitable Distribution of Income
Potential Conflicts among Economic Objectives
Macroeconomic Policies and the Stabilisation of Aggregate Demand
Economic Policies, Instruments and Objectives

Chapter 14: Fiscal Policy

The Federal Government Budget

Possible Budget Outcomes
The Economic Effects of the Budget
Recent Trends in Australian Fiscal Policy

Chapter 15: Monetary Policy

The Goals or Objectives of Monetary Policy

The Implementation of Monetary Policy
The Economic Impact of Changes in Interest Rates
Recent Trends in Monetary Policy
The Transparency, Accountability and Effectiveness of Monetary Policy

Chapter 16: Microeconomic Policy

The Rationale for Microeconomic Policies

Structural Change and Microeconomic Policies
Reforms in Product Markets
Reforms in Factor Markets
Regulation, Deregulation and Competition Policy
The Costs and Benefits of Microeconomic Reform

Chapter 17: Labour Market Policy

The Role of the National and State Industrial Relations Systems

Evolution of the National Industrial Relations System
The Role of Institutions in the Current Industrial Relations System
Evaluation of the Fair Work Act 2009
Evaluation of the Current Industrial Relations System

Chapter 18: Australias Recent Economic Performance

The Limitations of Economic Policies

Economic Growth and the Quality of Life
Full Employment
Price Stability
External Stability
The Distribution of Income and Wealth
Environmental Sustainability

277
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279
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287
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301

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Glossary of Terms

392

Index

402

INTERNATIONAL WEBSITE ADDRESSES

Asia Pacific 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.naftanow.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)

AUSTRALIAN WEBSITE ADDRESSES

www.wto.org

Australian Bureau of Statistics (ABS)

www.abs.gov.au

Australian Competition and Consumer Commission (ACCC)

www.accc.gov.au

Board of Studies NSW (BOS)

Department of Climate Change and Energy Efficiency

www.bos.nsw.edu.au
www.climatechange.gov.au

Department of Education, Employment and Workplace Relations (DEEWR)

Office of Environment and Heritage
Department of Foreign Affairs and Trade (DFAT)
Department of Treasury

www.deewr.gov.au

www.environment.nsw.gov.au
www.dfat.gov.au
www.treasury.gov.au

Fair Work Commission (FWC)

www.fwc.gov.au

Fair Work Ombudsman (FWO)

www.fwo.gov.au

Foreign Investment Review Board (FIRB)

www.firb.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