Essay on The Impact of the Global Financial Crisis on Economic Growth

This report will show an overview of the current state of the Australian economy and its management by the Federal government through examining economic indicators such as economic growth (GDP), unemployment, inflation and trade.

Another form of macroeconomic policy is fiscal policy, which involves the use of the Commonwealth Government’s budget in order to achieve the Government economic objectives. By varying the amount of government spending and revenue, the government can effectively alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators of the economy.

The figure obviously had not return to pre-crisis level. Moreover, recent commodity prices had fallen significantly which will affect Australia’s short and long term economy.

Over the four years from 2009-10 to 2012-2013, Labor had met its fiscal rule of keeping the average spending growth rate to less than 2% a year (Musgrave, R. A. n.d). This was the lowest period of spending growth in 23 years, meaning that not enough money was being injected into the circular flow of income. This reduced aggregate demand as consumer spending was low. In order to ensure that key spending was sustainable, structural improvements were required for the 2014-15 Budget. Overall, the Labor government has left a disastrous legacy of high debt for the Liberal government to try and overcome.

As of the report for fiscal year 2011, the total funds spent for the “federal welfare programs amounted to roughly $ 1.03 trillion. . . This excludes entitlement programs to which people contribute (e.g. Social Security and Medicare)”, according to Sessions, J. (2011, p.1). SS expenditures in 2011 was $725 billion while for Medicare, it amounted to $ 480 billion.

If the government spends a dollar on bread and then a baker uses part of that dollar to buy flour. The flour distributor uses part of that to pay the truckers. Then the original dollar of the government spending becomes in effect more than a dollar. In practice the multiplier for government spending is not very large [1]. With each dollar of government spending the GDP increases by only 1.4 dollars [1]. Government spending and taxes are not separate issues. The government can only pay off its debt and expenditures by increasing the taxes. A study [2] suggests that "an exogenous tax increase of one percent of GDP lowers real GDP by roughly three percent", a phenomenon likely caused by the fact that "investment falls sharply in response to exogenous tax increases" [2]. Thus, what seems to be a course out of recession may actually be a road into another one.

Australia’s fiscal stimulus seems to have offset the effect of the financial crisis in 2008. It has decreased the income inequality in the immediate year and may have also reduced inequalities in the short term economic inequalities, but it is hard to tell as results

Fiscal policy: Given the breadth and depth of this recession, it was clear that the Treasury and the entire Obama administration had to take bold actions. In fact, right at the beginning, they were committed to a fiscal stimulus policy package which would be “substantial” enough to pull the economy out of the recession. The final stimulus package signed into law in 2009, the American Recovery and Reinvestment Act, was totaled $787 billion including about one-third tax cuts and one-third aid for states and the unemployed. Of the rest, labor health and education investment got 8%, and infrastructure investment got about 7%. It also included a large amount of government money to

Booms, busts, recessions, and growth; all of the preceding terms are characteristics of a typical market economy. There are times when an economy can flourish spectacularly and there are times when it can fail miserably. Consequently, it is the responsibility of a nation’s central bank to manage these fluctuations through conducting effective monetary policy. The following paper will assume the perspective of the Reserve Bank of Australia (RBA) and critically analyze the past, present, and future of the Australian economy while considering specific sectors.

The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.

The “Great Recession” is commonly used to explain the massive economic contraction that occurred in the United States during the fourth quarter of 2007. However, the actions of the United States spanned to other nations, leaving massive effect on the global economy. One nation that took on serious financial burden during this recession was the United Kingdom. This nation first faced the effects of the Great Recession beginning in the first quarter of 2008. Overall, the initial mass effects on the nation can be attributed to the nation’s reliance on the financial sector. In fact, after partially stabilizing in 2009, the country struggled with a double-dip recession between 2010-12, and continues to struggle with some of these effects.

Since the global financial crisis of 2008, the UK government has been implementing various policies to combat the recession and stimulate economic growth. This essay will look at how effective the fiscal and monetary policies used since the crisis are in achieving the four-macro economic objectives. In addition, I will provide my input on the best way the UK government can carry out these policies.

In Christina Romer’s “Fiscal Policy in the Crisis: Lessons and Policy Implications”, one of her first lessons brought to the table was how fiscal policy action does indeed have a quantifiably substantial effect on output and employment. The evidence presented was that which David Romer and she took presidential speeches and reports that identified tax changes for purposes of reducing deficit – not countercyclical reasons. The study revealed that after these exogenous fiscal policy events took place, changes to output and unemployment followed. Meaning, if there were expansionary or contractionary

the period from 2007 to 2009 to ensure inclusion of the effects of the economic disruption caused by the global financial crisis in their study of SCRM and resilience. Academic studies follow significant events. For instance, peaks in published scholarly journal articles on SCRM occurred following disruptions, in 2004 following 9-11 and again in 2009 following the global recession (Ghadge et al., 2012).

Economic growth involves in an increase in the production of goods and services in an economy. Sustainable economic growth is a rate of growth that can be maintained by an economy without producing other future economic problems. Sustainable growth is desirable to households because if there is excessive growth, goods and services become more expensive, so there is a fall in savings, and if there is negative growth unemployment occurs due to a surplus of labour leading to less disposable income. For firms, sustainable growth is desirable because if the rate of growth is too high then there is a shortage in labour and difficulties too trade, or if the rate is too low then the firms’ income decreases due to a decrease in price of goods and services. Sustainable economic growth is desirable for government because if the rate of growth is too high then they will have excessive credit but if it is too low then they will be in excessive debt. It is important for NZ’s economy that has just come out of a global recession to have sustainable growth in order to maintain their standard of living relative to other countries. All aspects of the economy need to be at a balance in order to reduce resource depletion as well as ensuring the economy is still developing. The fiscal and monetary policies are two policies that can be implemented to influence an economy to achieve price stability, sustainable economic growth, and attaining full employment, the three macroeconomic of government.