Monetary policy
- no longer being used as
- in the past, contractionary policy was used:
- to reduce consumer spending on imports
- for a short-term improvement in the BOGS
- to reduce consumer spending on imports
Fiscal policy
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had a role in addressing Australia’s historically low national savings, by adopting the policy of fiscal consolidation
- Allowing for a reduction in the government’s call on private savings (Domestic market operations)
- meaning the government no longer has to borrow money from the financial sector (selling gov securities (bonds))
- which frees up money for private investors to borrow domestically
- → reducing the need for foreign borrowings
- → reduces Australia’s foreign debt
- → reducing the need for foreign borrowings
- Allowing for a reduction in the government’s call on private savings (Domestic market operations)
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prevents the crowding out effect
- as gov is borrowing all the money, private sectors cant afford to borrow (and then spend) money.
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^^ was partially interrupted during COVID, which saw a significant increase in government borrowing
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Fiscal consolidation is :: running balanced or surplus budgets over the course of the economic cycle
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Domestic market operations is : the government selling or buying back government securities (bonds) to get money from the private sector and influence the overnight money market.
Australia’s superannuation guarantee
- compulsory superannuation since 1990s
- has substantially expanded the pool of national savings
- has also increased Australia’s overseas investments
- → creating financial inflows on the Net primary income account (dividends)
- has also increased Australia’s overseas investments
Microeconomic reform
- Microeconomic policies are : government actions that aim to increase aggregate supply by improving the efficiency and productivity of producers and industries
- i.e. cutting protection, labour market reforms
- addresses structural problems causing Australia’s imbalances (inefficient industries)
- improves Australia’s international competitiveness
importance of foreign investor confidence
- one of the best measures of External stability is the extent to which Australia maintains the confidence of international investors
- Governments aim to sustain this confidence through:
- inflation targeting regime
- goal of budget surpluses (fiscal consolidation)
- continued commitment to Microeconomic reform