Question

1. At the same time as the RBA is reducing interest rates the Australian Government will be running a budget deficit in 2020. How this will affect aggregate demand? A diagram would assist your answer here and attract further marks
2. How will the size of the marginal propensity to consume affect the size of the multiplier and how will this impact on this fiscal policy initiative?
3. If consumers decide to increase their rate of savings due to increasing uncertainty about the future, explain how this will affect the fiscal policy initiative.
4. Discuss whether this fiscal policy initiative aligns with the RBA’s decision to reduce interest rates.         

Answer 1

A) Impact on Reduce in the Bank intrest rate in Economh

In any economy if we get the loan amount with less intrest rate means it reduces total expenses in the whole economy and it helps to rise in the deamand function and also make growth in the economy too. The rise inthe Aggregate demand also leads to inflation also.  

Some Key featues for low Intrest rate

It helps to reduce the expenses for the loans and advances. This will help to give more loans to the business community with cheaper intrest rate will adversly effect the total growth in the economy as well. It also reduces the low intrest rate in the mortgage loans to help the business community to make more profitablity in the economy. It also help in making the real estate business to increase the productivity and to improve the economy grow as well Low interst rate will effect in the depreciated trend in the economy. This will increase the chances of inflation rate go higher in the economy,

Please find the diagram Showing Aggregate Demand over low Intrest rate

B) Multilier Effect Impact on physical policy initiative

This theory should explain this way base on that how to take care in the expeses of the excessive income taken care in the economy apply this theory also it will determined by the excess income should be utalised how much they were withdrawed and other withdrawal will effect in this theory.  

Equation is to be used to determine the Multilier is

= 1 / 1-mpw

This theory is defenity helo in the physical policy of the country that this should be determined by the usage of the excess money in the market how it utalised and how much it withdrawed will effect in the total impact of the physica policy of the country.

C) Fiscal Policy means there is regulatory control of government between the spending level and the tax rates to evaluate the total strength of the economy. If the consumers are decided to increase the rate of investment dues to some uncertainity in futures defenitely have adverse effect in the fiscal pollicy of the government. This will leads to drastic reduction of the money inflow to the market willl leads to recession in the economy. It will also effect the overall expeditures of country to tackle to lead the less growth in the economy. Governemnt should act intermediary between these factors to promote both way to indulge money into market for the better economic growth.

C) Defenitly dues to this fiscal policy government should give the intruction to Reserve Bank of Australia for monitoring the situation and if the situation is not apted for the economy should reduce the intrest rate to help to consumer group to increase in their spending habbits to boost up the total economy of the country.