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Australian Economic Policies Essay

2744 words - 11 pages

The Australian Economy in the 21st century has numerous policies to stabilize and control the economy in this brave new era of Globalisation. These policies reside on both the microeconomic macroeconomic scale, and they have objectives in stabilizing the economy.The two main objectives of these policies include the goal to achieve an increased standard of living for the population and Improved job prospects for Australia's growing population. The first priority for a government in managing an economy is to determine what it will pursue as its economic objectives. Governments can choose to pursue a range of policy aims, and over time determining priorities.There three main objectives in ...view middle of the document...

The RBA's manipulation of this Cash Rate can either encourage Spending and Investment (Expansionary "" where Investment > Spending) or encourage Savings (Contractionary "" where Investment < Spending).As Shown in Diagram 1.Altering the Cash Rate can have very powerful long-term effects in the Economy. If The cash rate rises, this can spark economic growth, therefore increasing Employment, decreasing national savings, rising output, and also rising inflation.Also another way the RBA can alter of Australian securities. It does this its mass Buying and selling power of government securities. Diagram 2 shows how the RBA Can ease or tighten Monetary policy through Market operations. Also another effect of an interest rate change is on the Exchange rate. The higher the exchange rate means more overseas investment, an increase in the demand for Australian dollars, thus causing a decrease in supply and appreciation of the Australian dollar.Therefore higher interest rates have a contractionary effect on the CAD. And a lower interest rate would have the opposite effect.The objective of Monetary Policy is to control and stabilize inflation, which is measured using the Consumer Price Index or CPI. The RBA targets an Inflation Rate of 2% - 3% over the economic cycle. This is achieved through Manipulation of the cash rate (mentioned above) The advantages of inflation targeting is to provide an anchor point for people's inflationary expectations; makes the conduct of monetary policy more credible if the target is achieved; enables better policy co-ordination between countries to control inflation.The second objective of monetary policy is to achieve Full Employment. This is based on attempting to minimize the rate of unemployment close to the non-accelerating inflation rate of unemployment (NAIRU) estimated between 5% and 7% of the workforce of Australia.Fiscal Policy is central to the management of the economy. Fiscal policy involves the use of the Commonwealth Government's Budget in order to achieve the Government's economic objectives. By varying the amount of government spending and revenue, the government can alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators in the economy. Fiscal policy can create three different impacts on economic activity, expansionary, contractionary and neutral. Expansionary stance is where the government is taxing less and spending more (causing an Economic rise), Contractionary stance is where the Government is taxing more and spending less And Neutral where taxation and spending are equal.Furthermore, changes in government spending and revenues collection can alter the Distribution of Income between individuals in the economy; it also it can lead to a reallocation of resources, changing the pattern of production in an economy.This revenue is mainly gathered through direct tax (personal and company income tax) and indirect tax (such as...

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