- The government uses expansionary macroeconomic policies (fiscal & monetary) to influence eco growth (in the short-term), with the goal of smoothing fluctuations in the business cycle.
Monetary policies
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is the RBA changing the official Cash rate
- (interest rates will follow changes in the cash rate)
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to encourage eco growth, interest rates can be reduced to encourage consumer and business spending.
Fiscal policy
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involves the use of the Commonwealth Government’s Budget to influence the level of AD → influences the level of economic growth
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If the Government wants to increase eco growth, it can reduce taxation and/or increase expenditure
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The JobKeeper wage subsidy and increased JobSeeker welfare payments were central to the Australian Government’s response to the COVID-19 recession in 2020–21 and are good examples of fiscal policy in action.
Microeconomic policies
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aim to increase the economy’s (long-term) sustainable growth rate by increasing aggregate supply.
- addresses structural factors of eco growth
- often has a time lag to see results
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also reduces the extent to which higher growth becomes constrained by inflationary and current account problems.
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state governments have made large investments in physical infrastructure
- helping to relieve transport and supply chain bottlenecks for roads and ports
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labour market policies encourage economic growth through
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increasing aggregate supply, specifically through improving labour productivity.
- aimed to help workers produce more through higher education attainment and upskilling.
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The Albanese Government’s 2022 Jobs Summit identified the risk to eco growth from Australia’s skill shortages in IT and the care economy (nurses, aged care)
Australia’s 24-25 budget breakdown:
- Aimed at pursuing the ‘Future made in Australia Act’
- $15B National Reconstruction Fund.
Monetary policies
- major objective is inflation
- so the current policy is focused on ==maintaining interest rates at 4.35%==
Fiscal policy
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the budget has attested to addressing the cost of living crisis. it includes:
- stage 3 tax cuts
- $300 energy rebates
- burgeoning spending pressures from health, the NDIS and aged care
- creating structural spending issues for the future
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The gov manipulates its budget outcome through the changes that occur with the discretionary and automatic stabilisers which are built into each budget.
Microeconomics
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(focused on long-term economic growth)
- often has a time lag to see results
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Moodys says the broader issue is weak productivity and how effective spending programs (e.g. Future Made in Australia) are allocating resources