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Economics_-Macoenomics

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Term 1 Notes
Em Ballard
Note by Em Ballard, updated more than 1 year ago
Em Ballard
Created by Em Ballard about 7 years ago
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Page 1

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

Page 3

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

Page 4

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

Page 7

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.   

Page 8

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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