Podcast
Questions and Answers
What was New Zealand's economic status before the reforms began in 1984?
What was New Zealand's economic status before the reforms began in 1984?
- One of the most liberalized economies in the world
- A major player in international trade
- The fastest growing economy in the Pacific
- The most protected and regulated economy in the developed world (correct)
New Zealand's GDP per head growth since 1984 has been the fastest in the developed world.
New Zealand's GDP per head growth since 1984 has been the fastest in the developed world.
False (B)
What action did the Labour-led coalition government take regarding wage negotiations?
What action did the Labour-led coalition government take regarding wage negotiations?
Increased power for trade unions
The top rate of income tax in New Zealand was raised from ____ to 39%.
The top rate of income tax in New Zealand was raised from ____ to 39%.
Which of the following statements reflects the sentiment of many New Zealanders regarding the reforms?
Which of the following statements reflects the sentiment of many New Zealanders regarding the reforms?
After the reforms, Australia experienced much faster ___ than New Zealand.
After the reforms, Australia experienced much faster ___ than New Zealand.
Match the following phases of New Zealand's economic reforms with their descriptions:
Match the following phases of New Zealand's economic reforms with their descriptions:
Name one significant change made by the Labour-led government in response to the reforms.
Name one significant change made by the Labour-led government in response to the reforms.
What percentage of New Zealand's GDP is accounted for by government spending?
What percentage of New Zealand's GDP is accounted for by government spending?
New Zealand's GDP per head has grown by an average of 1.5% since the reforms began.
New Zealand's GDP per head has grown by an average of 1.5% since the reforms began.
Which significant reform in New Zealand occurred in 1991?
Which significant reform in New Zealand occurred in 1991?
Since 1992, New Zealand's GDP has grown by an average of _____ a year.
Since 1992, New Zealand's GDP has grown by an average of _____ a year.
How does New Zealand's income per head compare to other economies since its reforms?
How does New Zealand's income per head compare to other economies since its reforms?
Unemployment in New Zealand is currently lower than it was in 1983.
Unemployment in New Zealand is currently lower than it was in 1983.
What is New Zealand's potential growth rate after the reforms?
What is New Zealand's potential growth rate after the reforms?
Match the following time periods with their corresponding GDP growth rates:
Match the following time periods with their corresponding GDP growth rates:
What is a better gauge of productivity performance than labour-productivity growth?
What is a better gauge of productivity performance than labour-productivity growth?
New Zealand has seen a decline in quality of goods and services since opening up to foreign competition.
New Zealand has seen a decline in quality of goods and services since opening up to foreign competition.
What effect did the 1991 labour-market deregulation have on lower-skilled workers in New Zealand?
What effect did the 1991 labour-market deregulation have on lower-skilled workers in New Zealand?
The scrapping of import controls in New Zealand provided access to foreign goods that were previously __________.
The scrapping of import controls in New Zealand provided access to foreign goods that were previously __________.
Which sector was NOT mentioned as having improved in New Zealand after the reforms?
Which sector was NOT mentioned as having improved in New Zealand after the reforms?
The critics argue that the reforms in New Zealand have failed and the country is worse off as a result.
The critics argue that the reforms in New Zealand have failed and the country is worse off as a result.
New Zealand's public-sector debt and __________ pressures were increasing prior to economic reforms.
New Zealand's public-sector debt and __________ pressures were increasing prior to economic reforms.
Match the following improvements in New Zealand post-reforms with their descriptions:
Match the following improvements in New Zealand post-reforms with their descriptions:
What was a consequence of the removal of capital controls in New Zealand?
What was a consequence of the removal of capital controls in New Zealand?
The overvalued exchange rate in New Zealand during the 1980s and 1990s contributed to poor export performance.
The overvalued exchange rate in New Zealand during the 1980s and 1990s contributed to poor export performance.
What major economic policy error did New Zealand's Reserve Bank make during the Asian crisis?
What major economic policy error did New Zealand's Reserve Bank make during the Asian crisis?
In theory, free trade and deregulation should promote growth by encouraging a shift of resources to industries in which the country has a __________ advantage.
In theory, free trade and deregulation should promote growth by encouraging a shift of resources to industries in which the country has a __________ advantage.
Match the following economic factors to their consequences:
Match the following economic factors to their consequences:
How did the labor market impact New Zealand's economy during the late 1980s and early 1990s?
How did the labor market impact New Zealand's economy during the late 1980s and early 1990s?
The economic reforms in New Zealand led to an immediate and significant increase in new industries.
The economic reforms in New Zealand led to an immediate and significant increase in new industries.
What is New Zealand's main comparative advantage in exports?
What is New Zealand's main comparative advantage in exports?
What were the two major themes suggested for improving New Zealand’s economic situation?
What were the two major themes suggested for improving New Zealand’s economic situation?
New Zealand has a large population that allows it to exploit economies of scale.
New Zealand has a large population that allows it to exploit economies of scale.
What should New Zealand do to reduce its current-account deficit?
What should New Zealand do to reduce its current-account deficit?
New Zealand's net foreign liabilities amount to an alarming _____ of GDP.
New Zealand's net foreign liabilities amount to an alarming _____ of GDP.
What has been a concern related to the recent increase in top tax rates in New Zealand?
What has been a concern related to the recent increase in top tax rates in New Zealand?
Match the following challenges faced by New Zealand with their descriptions:
Match the following challenges faced by New Zealand with their descriptions:
Michael Cullen believes that the reform program was sufficient for economic growth.
Michael Cullen believes that the reform program was sufficient for economic growth.
What does New Zealand perform badly in, according to international standards?
What does New Zealand perform badly in, according to international standards?
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Study Notes
Economic Reforms in New Zealand
- New Zealand was once heavily protected and regulated but began radical market reforms from 1984, aiming to transform its economy.
- The reforms were viewed initially as successful, with hopes of turning New Zealand into a competitive economy akin to Hong Kong.
- Current perceptions suggest that the economic reforms have not yielded expected results, with claims of failure circulating among economists.
Economic Performance Post-Reforms
- Since 1984, average GDP per head growth has been just 0.9% per year, the slowest in the developed world.
- Australia, initially criticized for lacking reforms, has experienced significantly faster growth over the past decade compared to New Zealand.
- Between 1984 and 1991, New Zealand’s economy stagnated; however, from 1992 onwards, average GDP growth reached 3% per year, indicating late positive effects of reform.
Social and Political Impact
- New Zealand's reforms included increases in inequality, prompting a Labour-led coalition government to reverse some changes, enhancing trade union power and raising income taxes.
- Despite perceptions of a diminished welfare state, government spending exceeds 40% of GDP, higher than the OECD average.
- New Zealand's public services remain generous compared to other nations.
Productivity and Employment
- Critics note a slowdown in labour productivity growth post-reform. However, improvements are evident in total factor productivity (TFP), which suggests enhanced efficiency.
- Employment growth has been strong, with New Zealand’s employment rate among the fastest growing within the OECD.
Challenges Faced by the Economy
- New Zealand’s economy has faced challenges like a strong currency, which harmed export performance and led to recession.
- The labour market was not fully deregulated until 1991, affecting wages and unemployment during the transition.
- Geographic isolation and small population limit New Zealand’s market potential, particularly affecting agricultural exports.
Current Economic Concerns
- New Zealand grapples with a high current-account deficit (7% of GDP in 1999) linked to low savings rates and substantial foreign liabilities (90% of GDP).
- The IMF warns that increasing higher tax rates may exacerbate brain drain and reduce savings incentives.
Future Directions
- New Zealand’s finance minister advocates for a more active industrial policy to spur growth alongside necessary structural interventions in education and savings.
- Continued focus is needed on improving productivity and addressing inherent disadvantages posed by geographic isolation and market access.
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