Economics_-Macoenomics

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Government Goals

Macroeconomic Policies:

Policies which affect the whole economy such as investments, consumer spending and taxation

These policies are aimed at government goals: equity, stability and growth

Examples of macro-economic policies:

Monetary Policies: National Australian Bank can influence interest rate, affecting the level of savings and investments

Fiscal Policy: The Australian Government changes the level and type of spending and taxation which affects consumer spending and income.

Internal Balance

Stability: absence of excessive fluctuations in the macro-economy. The federal Government and The Reserve Bank of Australia aim for consitent growth, stable inflation and low unemployment in order to provide balance to the economy.

Target Levels:

Consumer Price Index: 2-3%

Gross Domestic Product:3-4%

Unemployment 5%

The Phillips Curve

Economic Model which represents the conflict of Inflation with unemployment

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Indicators

Lagging Indicators:

Information following changes in the economic cycle

-CPI, Unemployment and business profits

Coincident Indicators:

Information that provides forecast on changes in the economy at the same time as the change is occurring in the economic cycle

-Retail Turnover and consumer sentiment (confidence)

Leading Indicators:

Information regarding changes in the economy in advance of it occurring in the economic cycle

-Dwelling Approvals and International Growth

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Monetary Policy

Monetary policy: measures implemented by the Reserve Bank of Australia (RBA) to bring about changes in cons

umer demand by influencing money supply and interest rates

-Phillip Lowe is RBA Govener

-Interest Rates are usually expressed as 'Cash Rate', which are changed by adjusting 'Percentage Points'

-To Influence the inflation rates the RBA change the 'Cash Rate'

- The board of RBA meet on the 1st Tuesday every month to make monetary policy decisions

Expansionary Monetary Policy:

Lowering Interest rates the RBA encourages consumers to spend, as their savings will earn less over time. Additionally, lower interst rates encourage consumers to take out loans. Hence the spending stimulates growth (expansion)

-To be used when CPI is below 2-3%

Contractionary Monetary Policy:

Raising interest rate encourages consumers to save, as their savings will earn more over time. Additionally, higher interest rates discourage consumers to take out loans. Hence, the restriction of money flow slows the economy (contraction)

-To be used when below CPI is above 2-3%

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Fiscal Policy

The use of change in government expenditures and taxes to try influence consumer demand good and services. This measure is aimed at unemployment

>Budgetary policy-controlled via budget

>Federal Treasurer is Scott Morrison

Expansionary Fiscal Policy:

The government lower taxes and or increase spending on infrastructure and services to increase consumer spending.

-Lowering taxes aims to increase money available too consumers

-Increasing government spending on infrastructure and services, such as health and education, this provides employment.

>Used during a downswing or bust

Contractionary Fiscal Policy:

The Government Increases taxes and or decreases spending to decrease consumer spending.

-Increase taxes aims to decrease money available to consumers

-Decreasing Government spending infrastructure and services, decreases employment

> used during an upswing or boom

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Weaknesses of the Policies

1. Target levels for inflation and unemployment are not rigid, hence policy options may not be accurate.

>due to political or social concerns the target boundaries may be changed (subjective)

2. Policy options are blunt instruments and hence affect area which may not have been intentionally targeted

>No decision is ever certain of the outcome

3. Fiscal policy is open to political Bias

>policy may be wrong for the economy but may earn votes

4. The policy options are slow to take effect on the wider economy

> minimum of a year

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Strengths of the Policies

1. (Monetary) Income tax is progressive to income earnings will automatically correct inflation issues.

as Income rises so does tax and hence the income to the government rises

-hence income tax brackets do not need adjusting and income corrects inflation

2. (Fiscal) Welfare Benefits can be accessed by the unemployed whilst seeking employment.Welfare payments allow the economy to slowly build economic growth during downturns or busts. Welfare does not need to be adjusted.

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MYEFO-Budgetary Priorities

Mid Year Economic and Fiscal Outlook

1. Reduce Budget Deficit

Expansionary Fiscal Policy-Government Spending

-National Disability Insurance Agency 36 mill

International Airports (West sydney) 7.5 million

Superanuation (elderly) 27.7 million

Accounted Terrorism

Expansionary Fiscal Policy-Decreasing Taxes

Company Tax cuts-employ 400 000: move from 30 -25 % still above OECD 22%

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