Question

QUESTION 4: FISCAL POLICY

“On 30 March, the Government announced the $130 billion JobKeeper Payment to help keep Australians in jobs as we deal with the significant economic impact from the Coronavirus. This brings the Government’s total support for the economy to $320 billion ... representing 16.4 per cent of annual GDP.” (The Treasury, 2020).

Explain why this is an appropriate fiscal policy response from the Australian government in the current economic climate.

300-400 words please

Answer 1

Due to COVID-19 pandemic and slow down in the economy, there has been a decrease in AD in the economy of Australia and due to this reason, the SRAS has also decreased. It has made firms to further layoff workers. As a result, the economy entered into the vicious cycle to recessionary effects that could be very harmful to the economy, its people and overall growth perspective of the Australian economy. To resolve this problem, It is important for the government to come up with the expansionary fiscal policy to implement job keeper payments, government spending on other projects as well as other measures to stimulate the aggregate demand. It is a right set of policy initiatives, because it creates Aggregate demand in the economy as people have money to spend. It makes firms to produce more to cater the increased level of demand. In this process, firms create new jobs and employment rate increases. It brings more purchasing power to the people. They, further create demand and supply increases. The process repeats regularly and  continues, making economy to recover from the recessionary symptoms and nullify the impact of COVID-19 pandemic.

In due course of time, the economy grows with positive rate and overall GDP increases. It makes government to get more tax revenues even if the tax rate has decreased as a part of fiscal policy. Hence, the first positive impact of the government is economic development, employment increase and more tax revenue collection. The second positive impact is the future returns in the form of economic growth and human capital development that could take place when government supported their people and spent money as a significant part of GDP. With this right policy step, economy grows well and capitalize on the new opportunities in the post COVID-19 scenarios in the world. Besides, economy of Australia will also become a self reliant nation with this type of fiscal policy.