Active Discretionary Policymaking Essay

An increase or decrease in the unemployment rate can have a multiple effects on the Australian economy, both beneficial as well detrimental to the economic conditions and the societal outlook.

Inflation is an increase in the average overall price for goods or services while deflation is the decrease of average overall price for goods and services. Inflation always produces the effect of reducing the value of money and reduces the value of future monetary obligations. Reducing the value of money means a consumer has less money to buy services or goods. Reducing the value of future monetary obligations means investing or lending becomes more restricted as the value of return will be less than the amount paid back. Economist Arthur Okun analyzed the relationship between Unemployment and the GDP statistical. Okun’s law simply states that with rising unemployment there is a relationship of slow growth. Unemployment is a person looking for work and unable to find work. Deflation is the value of any amount of money rises. Deflation makes borrowers less likely to borrow because the value of the money they have to pay back will raise.

This will lead to a raise in unemployment if they increase the wage rate. Even if they raise it, this will affect they society too cause the price of goods and services will be increased, it will also affect the supply and demand in the market. This policy is also called the Price Floor

Monetary policy is a more effective lever to reduce unemployment and smooth the business cycle, due to its shorter implementation lag and ability to act in small multiples.

Policy Instruments. Policymakers under Hibbs’ partisan explanation are willing to use both fiscal and monetary policy instruments in order to achieve their goals. While electorally-oriented policymakers emphasize fast-acting policy instruments in order to localize the effect on the economy around the election, policymakers pursuing a partisan approach could make use of additional fiscal policy instruments. For example, in order to reduce inflation, an economic contraction could be created through a combination of an increase in the interest rate by the Federal Reserve (fiscal policy) and a

Monetary policy focuses on keeping interest rates at a modest level, keeping prices steady, and keeping unemployment low. The Federal Open Market Committee is responsible for making the necessary monetary policy changes. These changes influence both the markets within the United States and the markets internationally. Currently, there is a lot of volatility within the markets, and there is a lot of speculation about if and when the Federal Reserve will raise interest rates. There is also speculation about whether a negative interest rate would work to get the economy back on target. Also, many worry about whether the current government debt level will continue, and with the number of people entering retirement increasing, whether there will be enough money coming in to cover the costs of the social programs, such as Social Security and Medicare.

Targeting interest rates that can directly control inflation. The monetary policy is one that quickly comes into play. Central banks are independent of the government and refrain from political influence. They can boost exports by merely weakening the currency. The benefits of the fiscal policy consist of direct spending to specific purposes, by using taxation they can discourage negative externalities, and have a shorter time lag. The potential costs of the policies can create budget deficits, having to spend tax incentives on imports, and may be motivated by politics.The use of the monetary policy runs the risk of hyperinflation, the time it takes for the effects to materialize, the technical limitations and the fact that financial tools affect the entire

• Ensure high levels of employment by conducting the national monetary policy through influencing the economy’s money and credit conditions in pursuit of stable prices and full

Quantitative easing uses money as a means of payment. It is used as a tool of monetary policy when the other tool of monetary policy which is interest rate is near zero and not increasing. Monetary policy concerns the way in which government actions shift how money is used.

(3) The government is no longer actively control of macro economy, and to a certain extent, reduce the macroscopic intervention with the purpose

The debate about the relationship between inflation and unemployment is mainly based on the famous “Phillips Curve”. This curve was first discovered by a New Zealand born economist called Allan William Phillips. In 1958, A. W. Phillips published an article “The relationship between unemployment and the rate of change of money wages in the United Kingdom, 1861-1957”, in which he showed a negative correlation between inflation and unemployment (Phillips 1958). When the unemployment rate is low, the inflation rate tends to be high, and when unemployment is high, the inflation rate tends to be low, even to be negative.

Usually this goal is "macroeconomic stability" - low unemployment, low inflation, economic growth, and a balance of external payments. Monetary policy is usually administered by a Government appointed "Central Bank", the Bank of Canada and the Federal Reserve Bank

Overtime the economy will experience adjustment, where Y moves towards Yn. Looking at graph 2, the short run equilibrium is at point A, where Y>Yn and P>Pe. Since P>Pe wage setters will increase their expectations of Pe in the future from Pe to Pe’. This will shift the AS curve upward from AS

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

curve is characterized by a negative relation between inflation and unemployment with the latter leading