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Australia Goes for the Gold
Subject Australian Economic Growth
Topic Productivity and Growth
Key Words Deregulation, Trade Barriers, Economic Growth, Interest Rates Unemployment Rate
News Story

The Summer Olympics, currently underway in Australia, showcases performance. Exemplary performance is acknowledged by medals and paraded before millions of viewers around the world. However, one truly outstanding performance that will probably not even be mentioned is the Olympic-caliber performance of the Australian economy. Without an equivalent of a Silicon Valley, the Aussie economy has experienced a growth rate of 4 percent or more for the past 13 quarters. Productivity in Australia has even surpassed the much- lauded U.S. figures. And although unemployment in Australia exceeds U.S. unemployment rates, the July Aussie unemployment rate of 6.3 percent is a 10-year low.

The engine for economic growth in Australia was controversial economic reforms enacted in the 1980s and 1989s. The Australian economy, prior to the introduction of these reforms, had a highly regulated economy. Tariffs and other trade barriers restricted international commerce. A wage board, rather than labor markets, set wages for certain occupations. Labor unions were strong and militant. The reforms encouraged competition and competition, in turn, brought efficiency to industries and markets that were now deregulated. Productivity rose dramatically - rising more than 3 percent since 1993, and economists expect these gains to continue as Australia benefits from improved technology.

There is some discussion as to whether Australia's economy will slow in 2001. The central bank, concerned over the inflationary impacts of higher oil prices, a fast-growing economy and a weak currency, has raised interest rates 5 times in the past year, increasing the cash rate, the Australian equivalent of the Federal Funds rate, from 4.75 to 6.25 percent.

(Updated November 1, 2000)

Questions
1.

What are the benefits of free trade to the world? To a country like Australia?

2. What happens to a country's 'wealth' or standard of living when productivity improves?
3. Draw a demand and supply curve for labor. Show the equilibrium price and quantity. Suppose that a wage board had set wages for this industry instead of the market. Select a wage above and below the equilibrium and describe the inefficiencies that would result if the wage you selected were imposed on the economy.
Source Paul Wiseman, "Economy Down Under Spins on Top of the World," USA Today, September 25, 2000.

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