Australian Economy's Performance Is Assessed Based On The Achievement Of Economic Objectives Through Economic Policies

1611 words - 7 pages

The hypothesis of this report is that the Australian economy’s performance is assessed based on the achievement of economic objectives through economic policies.To evaluate the performance of the Australian economy over the years, the achievement of economic objectives of the Australian economy will be examined. The three main economic objectives are; Economic growth, Internal stability (low inflation and full employment), and External stability (stable exchange rate, a sustainable level of foreign debt and the current account deficit).The government implements an economic policy mix involving macroeconomic and microeconomic policy in order to achieve their objectives. The ...view middle of the document...

In recent years, the main objective of the RBA is to minimise inflation and keep it within its target range of 2-3%, over the course of the business cycle. Monetary policy is effectively used in order to impact upon economic growth. The RBA can adjust its monetary policy stance to suit the current or expected economic situations. To reduce the severity of a recession the RBA can adopt a monetary policy stance of loosening. Here, the RBA buys government securities which will boost economic activity. This boost in economic activity will occur by increasing the level of aggregate demand as consumer and investment spending increases. This will also help to achieve lower unemployment, though it will contribute to inflationary pressures. Alternatively, to dampen strong economic activity during a booming period, the RBA can develop a monetary policy stance of tightening. Here, the RBA sells government securities. This will slow economic activity through decreasing the level of aggregate demand as consumer and investment spending decreases. This is likely to lower inflation but increase the level of unemployment. Recently, this has been the case as the RBA has given priority to low inflation and concentrated in significant monetary policy tightening.This tightening has been the recent stance as Australia has been experiencing strong levels of economic growth and activity. Australia has been booming since the early 2000’s, where this is now the 17th year of continuous expansions since the last recession. The low unemployment rate and high participation rate supports this point. The RBA has consistently tightened monetary policy in order to achieve low inflation, where the cash rate in May 2002 was 4.25% and the current case is 7.25%, increasing at a steady rate. Furthermore, as our economy is showing signs of slowing down the RBA is unlikely to raise interest rates further unless believed necessary. Though achieving these objectives may cause the government to encounter some problems. Such as a decrease in consumer confidence because of signs showing a slowdown in the economy. This decrease in consumer confidence may lead to consumers spending less which may cause government revenues to decrease as well.Fiscal policy, involves the use of the government’s budget in order to achieve the government economic objectives.(Fiscal Policy in Australia, www.kewpid.net/notes/macro_reform.pdf)By altering the amount of government spending and revenue, the government can effectively change the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators of the economy.The government’s budget is what the fiscal policy works of, an annual statement from the government dealing with its income and expenditure plan for the next financial year. Fiscal Policy is an effective tool which can target specific sectors of the economy such as individual industries, unlike monetary policy which affects...

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