Macroeconomic policies alter the demand side of economics and are holistic in that the policies affect the economy as a whole. There are two macroeconomic policies; fiscal policy and monetary policy. Fiscal policy is the Governments use of the commonwealth budget. Monetary policy is the Reserve Bank’s control over interest rates. Effective use of these two policies can help to cut off the peaks and troughs of the economic cycle in order to maintain sustainable economic growth. Issues which are dealt with are unemployment, inflation, external stability, income distribution and environmental management.
Global economic conditions have been favorable since the 90s (bar the recent GFC) with low inflation, low interest rates and low unemployment. The macroeconomic stability worldwide such as the strong performance of the US economy also contributed towards Australia’s growth. China as a major resource supplier and Australia‘s resources boom at the moment are also favorable. Terms of trade (ratio of the price receive for exports to the price we pay for imports) are also good at the moment as they have lifted domestic incomes and increased Australia’s economic growth. Growing resource demands of industrializing economies such as China have also increased commodity prices which have given us the highest level of the terms of trade in 50 years. Currency movements have also helped Australia’s economic expansion. Australia’s export growth was threatened in the late 90s and the global downturn of 2001 and depreciated at times because of this. However, a depreciating Aussie dollar allows us to become internationally competitive. Sustainable range of economic growth has to maintain so that inflation does not go over 2-3% and does not push our CAD so high. Our current sustainable growth rate of 3% allows us to balance our CAD.
Fiscal policy essentially involves the use of the government’s budget in order to influence the economic objectives by varying...