Use Of Macroeconomics In The Australian Economy

Decent Essays
Part A

Part B
The fiscal, macroeconomic and monetary policies have been used to stabilize the Australian economy. A fiscal policy is when the government budget is used to manage economic activity. This means government spending and government taxation levels are altered to support long term economic growth. A monetary policy refers to the Reserve Bank of Australia’s (RBA) use of interest rates (cash rate) to influence the level of economic activity. Most importantly, the RBA sets interest rates to increase economic activity or decrease economic activity based on a few economic indicators. The macroeconomics is concerned with the performance of the economy.
Macroeconomics is the branch of economics concerned with large-scale or general
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This is achieved by increasing the money supply available in the economy and attempting to promote aggregate demand growth which is the sum of private consumption, investment, government spending and imports. Monetary policy focuses on the first two elements, private consumption and investment. By increasing the amount of money in the economy, the central bank encourages private consumption. Increasing money supply available in the economy, also decrease the interest rate which in turn, encourages lending and investment which leads to high aggregate demand growth. It is important for policymakers to make credible announcements. If consumers and firms believe that policymakers are committed to growing the economy, they will anticipate future prices to be higher than they would be otherwise. The consumers and firms will then adjust their long-term plans accordingly, such as by taking out loans to invest in their business. But if the they believe that the central bank's actions are short-term, they will not alter their actions and the effect of the expansionary policy will be minimized.
Fiscal policy has a stabilizing effect on an economy if the budget balance—the difference between expenditure and revenue—increases when output rises and
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