Australia's Macroeconomic Policies Affect The Economy

Macroeconomic policies are policies that affect the economy as a whole with the aim of minimizing fluctuations in the business cycle. Macroeconomic policies are made up of two types of policies, these including both monetary implemented by the Reserve Bank of Australia and fiscal policies administered by the government. The implementation of these policies has a significant and vital role in the achievement of multiple economic objectives. These including; Full employment of labor resources, sustainable economic growth and inflation, environmental sustainability, equal distribution of income and wealth and external stability
Macroeconomic policies have an immense role in achieving major economic objectives in Australia. A major economic
Inflation is the sustained increase in the general level of prices in the economy. The aim of the government in regards to inflation is to attempt to keep it between their targeted range of 2% and 3%. The implementation of macroeconomic policies affect inflation indirectly to ensure it remains within the range of 2% to 3% over the course of the business cycle. Australia has overcome relative high rates of inflation through the implementation of either contractionary or expansionary monetary policy or contractionary or expansionary fiscal policy. High inflation erodes real income, thus decreasing the purchasing power of consumers. Alongside this the increase in inflation will lead to a wage price spiral. This is whereby pressure is placed on industries for increased wages to support the rise in prices of goods and commodities and if price and wages are not met living standards commence to decline. Furthermore the cost of resources increases as a result producers have to increase prices to maintain profit margins to ensure they remain competitive, gradually reducing their labor force leading to unemployment levels. Hence the implementation of macroeconomic policies I the Australian economy am significant. The Australian economy has seen significant decrease in inflation to 2% between 1992-2001 from an average between 6% to 10% in the years of 1970-80. The employment of contractionary monetary policy is evident, whereby the RBA initiated an increase in the official cash rate, leading to a rise in interest rates and hence containing the growth of aggregate demand. Also further depicted in October 2009 whereby the RBA increased the cash rate by 0.25 %. The raising of the cash rate lead to an increase in the interest rates in the short term, resulting in the reduction in incentives for businesses to invest or borrow alongside consumers. Thus resulting in the decline in growth