Macroeconomic-Aims
What are the three main macroeconomic objectives?
Sustainable econ growth, low unemployment, and price stability.
Who is responsible for setting fiscal policy in Australia?
The Federal Government (Treasury and Parliament).
What is monetary policy?
The actions a central bank uses to influence how much money is in the economy and how much it costs to borrow.
What is the main goal of microeconomic reform?
To improve efficiency and productivity in individual markets and industries.
What are the components of Aggregate Demand?
Consumption, Investment, Government expenditure, and Net exports (C + I + G + (X – M)).
During which phase of the economic cycle is inflation most likely to increase?
Expansion phase
What happens to the budget balance when the government spends more than it earns?
Budget deficit.
If GDP growth and inflation are both below target, what type of monetary policy would be appropriate?
Expansionary monetary policy to boost demand and support growth.
What type of policy involves reducing tariffs and trade barriers to make markets more efficient?
Trade liberalisation
Why might monetary policy have a time lag in affecting the economy?
Because changes in interest rates take time to influence spending, investment, and overall economic activity.
What is the goal of the government when aiming for full employment?
To reduce cyclical unemployment without causing inflation to rise.
How does expansionary fiscal policy affect the AD/AS model?
It increases aggregate demand (AD), shifting the AD curve to the right.
How does a decrease in the cash rate affect the AD/AS model?
It shifts the AD curve to the right as consumption and investment increase.
Which policy aims to improve workforce flexibility and productivity by changing wage-setting and working conditions?
Labour market reform.
What is the difference between automatic stabilisers and discretionary fiscal policy?
Automatic stabilisers change with the business cycle without new government action, while discretionary policy involves deliberate changes to spending or taxation by the government.
If the unemployment rate falls below the natural rate and wages start to rise quickly, what risk does the economy face?
Demand-pull inflation
During which phase of the business cycle is contractionary fiscal policy most appropriate?
During an expansion/peak, to reduce inflationary pressure.
What is one limitation of monetary policy during a recession?
Low consumer confidence may stop people from borrowing and spending even if interest rates are low.
Which type of reform encourages private businesses to take over services previously provided by government?
Privatisation.
If the RBA lowers interest rates and the exchange rate depreciates, what effect will this have on net exports?
Net exports will rise as Australian goods become cheaper overseas.
How can leading indicators help governments and economists manage the business cycle?
They provide early signals of turning points in the economy, allowing policymakers to adjust fiscal or monetary settings before conditions worsen.
How can expansionary fiscal policy in the short run create long-run economic benefits?
By investing in infrastructure, education, and technology that improve productivity and shift LRAS to the right.
Why might monetary and fiscal policy need to complement each other during an economic downturn?
Because ombining low interest rates with higher government spending strengthens total demand and supports faster recovery.
What is one cause that could shift Australia’s LRAS curve left, and one cause that could shift LRAS right?
Left (decrease) - A decline in labour productivity or a fall in the size of the workforce.
Right (increase) - An increase in productivity or investment in technology, skills, and infrastructure.
If the Australian Government increases infrastructure spending at the same time the RBA raises interest rates, what is the likely combined effect on the economy in the AD/AS model?
Fiscal policy (spending) increases aggregate demand and may shift AS right over time, while higher interest rates reduce consumption and investment. The two policies partly offset each other, leading to slower growth in the short run but improved productivity in the long run.