2024 Trends: Aggregate supply - efficiency and technology

Syllabus Topic

HSC Topic Three - Economic Issues

Economic growth

• increases in aggregate supply - improvements in efficiency and technology

INTRODUCTION

In the dynamic landscape of economics, the ability of a nation to increase its aggregate supply is a critical factor in sustaining long-term economic growth and stability. For Australia, advancements in technology and improvements in efficiency have played pivotal roles in enhancing productive capacity and driving economic prosperity. Understanding how these factors influence aggregate supply is essential, as it provides a deeper insight into the mechanisms that underpin economic performance and development.

AGGREGATE SUPPLY

Aggregate supply refers to the total amount of goods and services that companies in an economy are willing and able to produce and sell at a given overall price level during a specific period. Essentially, it encompasses all the finished goods that consumers purchase within that timeframe. This concept is visually represented by the aggregate supply curve, which typically shows a positive relationship between the price level and the quantity of goods and services supplied.

Short-term fluctuations in aggregate supply are largely driven by changes in demand, while long-term shifts are more influenced by technological advancements and industry developments. Unlike aggregate demand, which focuses on the total demand for goods and services, aggregate supply deals with the production side of the economy.

TRENDS IN AUSTRALIA

Renewable Energy Technology

Australia is investing heavily, in renewable energy technologies such as solar, wind, and battery storage. These advancements are improving energy efficiency and reducing production costs across various industries, where there are tax incentives worth $11.7 billion for businesses to be motivated towards a clean energy shift. The 2024-25 budget’s investment of $22.7 billion in the Future Made in Australia initiative will be promoting technological development in clean energy and critical minerals, aiming to enhance productivity and economic growth.

Digital transformation

Australian businesses are increasingly adopting Industry 4.0 technologies, including the Internet of Things (IoT), artificial intelligence (AI), and automation. These technologies are driving improvements in manufacturing efficiency and productivity.

2024-25 budget overall

The budget overall represents significant trends to occur towards aggregate supply, that utilises technology and efficiency strategies.

• Energy Bill Relief Fund: The fund provides $3.5 billion in support through to 2025-26. By alleviating energy costs, this initiative will enhance energy efficiency for businesses and households, reducing operational expenses and improving productivity.

• Social and Affordable Housing: Increased funding for housing infrastructure over the next decade. Improved housing infrastructure can enhance worker productivity by reducing commute times and increasing proximity to workplaces. This contributes to a more efficient labour market and supports aggregate supply by improving overall economic efficiency.

• Surplus and Debt levels: There is a projected budget surplus of $9.3 billion, a significant improvement from previous forecasts. Net debt is expected to remain stable at 20-22% of GDP.  A balanced budget and stable debt levels provide a stable economic environment, which encourages investment and improves efficiency in aggregate supply by creating a favourable climate for business operations.

• By investing in technology and infrastructure, supporting energy efficiency, and managing debt prudently, the budget enhances productivity across various sectors. These measures collectively contribute to a more efficient production environment, enabling businesses to increase output and reduce costs, thereby strengthening the overall aggregate supply in the Australian economy.

SOURCES

Investopedia: Aggregate Supply Explained

University of Minnesota: Aggregate Demand and Aggregate Supply: The Long Run and the Short Run

Reuters: Australia to invest $15 billion in renewable energy, critical minerals

Australian Treasury: A Future Made in Australia- Factsheet

KPMG: The Industry 4.0 advantage in industrial manufacturing

Australian Treasury: Budget 2024-25