Assessment task (1 Viewer)

[jayz]

Question:
'Explain how the Federal Government has used monetary policy to promote economic growth, achieve full employment and assist internal stability'

Answer:
Help plz
thanks alot

 

[-=«MÄLÅÇhïtÊ»=-]

in a nutshell...interest rates are the lowest in decades

 

[Bambul]

What are you? A memeber of the liberal party??!!

Monetary policy over the past decade has been used primarily for inflation targeting. The RBA has an inflation target of 2-3% over the medium term. This means that inflation can move above 3% (as it is now) or below 2% (as it did in the mid to late 90's) so long as it remains within 2-3% in the medium term (about 3-5 years).

Low inflation is almost a synonym for internal stability. Also, by breaking the back of inflation and keeping it low the level of expected inflation is lower and this leads to lower future inflation. This is basically because people now don't try to buy things today instead of tomorrow because they think they will be much more expensive if they wait, nor will they demand high increases in their wages in order to maintain their purchasing power.

Lower inflation, 2-3% in the 90's compared to 5-10% in the 70's and 80's, allows the RBA to maintain interest rates at a lower level. These lower interest rates encourage economic growth and help to increase employment.

I'd probably also mention the Phillips Curve, ie. that inflation and unemployment are a trade off in the short term and increases in employment can be achieved only with increases in the price level. In the long run however (you probably don't need to know this) the economy will return to full employment regardless of the level of inflation.

 

[jayz]

Are there any specific economic strategies the government has used to promote economic growth?
(i needed for the essay)

thanks

 

[Bambul]

Specific to monetary policy or in general?

 

[truly-in-bliss]

in terms of employment..some of the policies include:

- Workplace REaltations Act (1996) - enterprise bargaining
- microeconomic reforms: tariff reform, privitisation, tax reform etc.

Ohter programs include:
- Work for the Dole based on the idea of mutual obligation
- Job Network (1998) - aims at reducing fricitional and structural Ue (it also replaces the Commwealth Employment Service (CES)

the 2002-03 budget also delivered subsidies such as the $800/person for training and transportation.

The government aims at reducing cyclical Ue thru sustaineed levels of econmic grwoth. Furhtermore, the government has kept interst rates low, this helps to protect domestic UE. However, one issue abt eco grwoth in relation to UE is dat it only decreases/sustaines the level of cylcical UE. It does not help with sustaining/reducing structual UE or other types of Ue (eg: Long term/hard-core/frictional/seasonal etc)

The fiscal poolicy has also helped with sustaining helathy levels of eco grwoth and in effect, acheiving a sustainable level of Ue.

ie: Injections (I+G+X)> Leakages (S+T+M) has a stimulatroy effect on consumption. Hence there will be an increase in AD rise in AS (in the aim of profiting, hence they will produce more if there is a greater D) grater D for labour.

hope that helps

truly in bliss

 

[truly-in-bliss]

Originally posted by Bambul
I'd probably also mention the Phillips Curve, ie. that inflation and unemployment are a trade off in the short term

just a lil addition....the inverse relationship between inflation and Ue disappears in periods of Stagflation. For example, in the 1970s, there was a high level of infaliton and a high level of Ue). In the late 1990s, Australia also experienced stagflation. However, this time it was the opposite, i.e.: low inflation coupled with relatively low Ue.

 

[Bambul]

Originally posted by truly-in-bliss
just a lil addition....the inverse relationship between inflation and Ue disappears in periods of Stagflation. For example, in the 1970s, there was a high level of infaliton and a high level of Ue). In the late 1990s, Australia also experienced stagflation. However, this time it was the opposite, i.e.: low inflation coupled with relatively low Ue.

That's not true. During periods of inflation there is still a trade-off, it's just that you start off with higher levels of inflation/unemployment. The same for periods of low inflation/unemployment (eg. the 60's).

The trade-off exists only in the short-term, in the long-term you can achieve lower unemployment without increasing inflation and vice-versa. This is why you can go from stagflation to low inflation/unemployment over the decades.

 

[jayz]

Quote
'Specific to monetary policy or in general?'

To me, specific strategies gov. can use to promote Monetary Policy is tightening and loosening it through affecting the demand for $AUS, is that right?

and

In general r there any policies gov used to help low levels of inflation and in turn or more specifically economic growth?

Thanks

 

[Bambul]

Government policies to help maintain low levels of inflation:
Microeconomic reform
Inflation targeting (Monetary policy)
Budget Surpluses (Fiscal policy)

And I didn't really understand your first paragraph. Could you please restate it using proper grammar?

 

[truly-in-bliss]

Originally posted by Bambul
That's not true. During periods of inflation there is still a trade-off, it's just that you start off with higher levels of inflation/unemployment. The same for periods of low inflation/unemployment (eg. the 60's).

The trade-off exists only in the short-term, in the long-term you can achieve lower unemployment without increasing inflation and vice-versa. This is why you can go from stagflation to low inflation/unemployment over the decades.

thankz for the note Bambul..

 

[jayz]

Yes, i c how my grammar is totally stuffed
Anyway, i wanted to say that monetary policy can only affect the level interest rate through government's conduct of DMO, which basically is changing the supply of local($AUS) currency. Is this correct?

And, could monetary policy 'directly' affect the level of economic growth?

Thanks

 

[jayz]

help plz

 

[kewell101]

"And, could monetary policy 'directly' affect the level of economic growth?"



No it can't. Only indirectly! JAY!

 

[hk31]

jayz....u go to fort street ...don't u?!!

 

[jayz]

pretty obvious since even you know the question we r about to attempt on friday, assuming you r from fort st 2