Question

In: Economics

list and explain the key macro economic goals providing an overview of the Australian economy

list and explain the key macro economic goals providing an overview of the Australian economy

Solutions

Expert Solution

This is "absolute" (non-inflationary) long-term stable and sustainable economic growth and development. An economy's economic growth is an outward change in its Possibility Curve of Production (PPC). Another way of describing growth is to increase the total production or Gross Domestic Product (GDP) of a state. The central bank and government's aim would be to increase economic growth without an inflation rate rise.Full employment happens when the labor force is fully employed in productive work (this counts as people who actively pursue jobs or are already working). A person is considered unemployed if he has no job at the moment and actively looks for one. Having a lower unemployment rate means a more productive economy. That goal means that the economy is operating at or near full efficiency as many people who want to be employed are working.

Balance of Payments equilibrium means that the exports and imports of a nation should not be any greater than their imports or exports.

Throughout Australia, fiscal policy conduct is subject to the 1998 Charter of Budget Honesty Act, which imposes on the Australian government a structured obligation to set out and report against a medium-term fiscal strategy. This system must be based on' Sound Fiscal Management Principles' including: taking into account government debt and fiscal risk management, the state of the economic cycle, the adequacy of national reserves, the sustainability and dignity of tax base and capital through generations.

The Board of the Australia Reserve Bank (RBA) is responsible for setting monetary policy in Australia. Monetary policy decisions are implemented by changing the cash rate (interest rate on money market overnight loans). The cash rate is determined by the supply and demand powers for overnight funds on the money market. The RBA may regulate the cash rate by increasing or decreasing the supply of funds that banks use to settle transactions among themselves through open market operations. For example, if the RBA wants to lower the cash rate, it can provide more funds for exchange settlement than commercial banks want to carry.

When market pressures in the economy are increasing, expressed in rising prices, the RBA could tighten monetary policy, dampening demand. In addition, the RBA could loosen monetary policy to support economic activity in the face of weak demand expressed in deflationary pressures.

It is important to remember, however, that monetary policy can affect the macroeconomy even if interest rates remain unchanged. The level of interest rates is what matters. The cash rate may not have adjusted for a while, but the interest rate level still has a significant expansionary and contractionary effect on the economy.

The Australian dollar appreciated in reaction to the mining boom, which helped ease inflationary pressures and ensured that the economy provided the requisite price signals to encourage capital flow to the mining sector. The dollar appreciation has helped spread the mining boom benefits by rising Australian households ' purchasing power. The high exchange rate, however, had a contractionary effect on a number of economic sectors


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