New Zealand Economy Analysis
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Questions and Answers

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.

    False

    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%.

    <p>33%</p> Signup and view all the answers

    Which of the following statements reflects the sentiment of many New Zealanders regarding the reforms?

    <p>Some believe the reforms went too far and resulted in increased inequality.</p> Signup and view all the answers

    After the reforms, Australia experienced much faster ___ than New Zealand.

    <p>economic growth</p> Signup and view all the answers

    Match the following phases of New Zealand's economic reforms with their descriptions:

    <p>Liberalization = Pursuit of market reforms leading to decreased regulation Reversal = Initiatives to reintroduce regulations and union powers Economic Disappointment = Slow growth in GDP per head compared to peers International Comparison = Australia's faster economic growth relative to New Zealand</p> Signup and view all the answers

    Name one significant change made by the Labour-led government in response to the reforms.

    <p>Renationalization of workplace accident insurance</p> Signup and view all the answers

    What percentage of New Zealand's GDP is accounted for by government spending?

    <p>40%</p> Signup and view all the answers

    New Zealand's GDP per head has grown by an average of 1.5% since the reforms began.

    <p>False</p> Signup and view all the answers

    Which significant reform in New Zealand occurred in 1991?

    <p>Labour-market deregulation</p> Signup and view all the answers

    Since 1992, New Zealand's GDP has grown by an average of _____ a year.

    <p>3%</p> Signup and view all the answers

    How does New Zealand's income per head compare to other economies since its reforms?

    <p>It has stopped falling</p> Signup and view all the answers

    Unemployment in New Zealand is currently lower than it was in 1983.

    <p>False</p> Signup and view all the answers

    What is New Zealand's potential growth rate after the reforms?

    <p>2.5% a year</p> Signup and view all the answers

    Match the following time periods with their corresponding GDP growth rates:

    <p>1984-1991 = Stagnated 1992-present = 3% average growth 1971-1984 = 1.5% average growth Before reforms = 1.5% potential growth</p> Signup and view all the answers

    What is a better gauge of productivity performance than labour-productivity growth?

    <p>Total Factor Productivity (TFP)</p> Signup and view all the answers

    New Zealand has seen a decline in quality of goods and services since opening up to foreign competition.

    <p>False</p> Signup and view all the answers

    What effect did the 1991 labour-market deregulation have on lower-skilled workers in New Zealand?

    <p>It reduced labour costs for lower-skilled workers.</p> Signup and view all the answers

    The scrapping of import controls in New Zealand provided access to foreign goods that were previously __________.

    <p>unavailable</p> Signup and view all the answers

    Which sector was NOT mentioned as having improved in New Zealand after the reforms?

    <p>Agriculture</p> Signup and view all the answers

    The critics argue that the reforms in New Zealand have failed and the country is worse off as a result.

    <p>True</p> Signup and view all the answers

    New Zealand's public-sector debt and __________ pressures were increasing prior to economic reforms.

    <p>inflationary</p> Signup and view all the answers

    Match the following improvements in New Zealand post-reforms with their descriptions:

    <p>Refrigerators = Increased variety and better quality available Waiting lists for foreign cars = Elimination, allowing immediate access Foreign-exchange control for magazines = Removed restrictions for subscriptions Consumer choice = Expanded greatly due to market liberalization</p> Signup and view all the answers

    What was a consequence of the removal of capital controls in New Zealand?

    <p>Massive appreciation of the exchange rate</p> Signup and view all the answers

    The overvalued exchange rate in New Zealand during the 1980s and 1990s contributed to poor export performance.

    <p>True</p> Signup and view all the answers

    What major economic policy error did New Zealand's Reserve Bank make during the Asian crisis?

    <p>They raised interest rates sharply.</p> Signup and view all the answers

    In theory, free trade and deregulation should promote growth by encouraging a shift of resources to industries in which the country has a __________ advantage.

    <p>comparative</p> Signup and view all the answers

    Match the following economic factors to their consequences:

    <p>Overvalued exchange rate = Poor export performance High wages = Increased unemployment Reserve Bank's policy during Asian crisis = Recession in 1998 Deregulation = Shift to competitive industries</p> Signup and view all the answers

    How did the labor market impact New Zealand's economy during the late 1980s and early 1990s?

    <p>Wages continued to rise, causing higher unemployment.</p> Signup and view all the answers

    The economic reforms in New Zealand led to an immediate and significant increase in new industries.

    <p>False</p> Signup and view all the answers

    What is New Zealand's main comparative advantage in exports?

    <p>Agricultural produce</p> Signup and view all the answers

    What were the two major themes suggested for improving New Zealand’s economic situation?

    <p>Getting macroeconomic policy right and introducing microeconomic liberalization.</p> Signup and view all the answers

    New Zealand has a large population that allows it to exploit economies of scale.

    <p>False</p> Signup and view all the answers

    What should New Zealand do to reduce its current-account deficit?

    <p>Boost private savings or run a bigger budget surplus.</p> Signup and view all the answers

    New Zealand's net foreign liabilities amount to an alarming _____ of GDP.

    <p>90%</p> Signup and view all the answers

    What has been a concern related to the recent increase in top tax rates in New Zealand?

    <p>An acceleration of brain drain</p> Signup and view all the answers

    Match the following challenges faced by New Zealand with their descriptions:

    <p>Structural problems = Issues such as education standards and low saving Isolation = Limited access to larger markets Current-account deficit = A situation where liabilities exceed savings Brain drain = Emigration of skilled professionals due to discouraging policies</p> Signup and view all the answers

    Michael Cullen believes that the reform program was sufficient for economic growth.

    <p>False</p> Signup and view all the answers

    What does New Zealand perform badly in, according to international standards?

    <p>Education standards.</p> Signup and view all the answers

    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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    Description

    This quiz explores the resilience of New Zealand's economy and the claims regarding its economic experiment. Dive into the arguments about whether the country should change course or continue on its current path. Understand the key factors influencing its economic performance.

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