Australia's Economy Over The Last Two Years Essay

Australia's Economy Over The Last Two Years - Essay Example In Australia, the Australian government and the Reserve Bank of Australia play a major role in the country’s economics, as these determine the macroeconomic policies in the country. According to the International Labour Organization (2013), a microeconomic policy that is aimed at achieving economic stability in a country, is a paramount condition for the achievement and sustenance of high levels of development tin a country. Nonetheless, this part of the essay explores the main macroeconomic policies used by the Australian Government and the Reserve Bank of Australia over the last two years. There are two core macroeconomic policies, which a country can use, and these include the monetary and the fiscal policy. Nonetheless, the Australian government and the Reserve Bank of Australia have in the past two years, used these to control the economy. Fiscal policy in Australia includes the level and composition of government revenues and outlays, methods of financing a budget defici t or using a budget surplus, the operation of automatic and discretionary stabilizers, and the provision of incentives to increase aggregate supply. According to Parkinson (2012), a major function of Australia’s fiscal policy is to ensure the maintenance of fiscal sustainability from a medium-term perspective. Parkinson (2012) also notes that monetary policy in Australia has the main purpose of maintaining inflation between 2 and 3 percent. The monetary policy in Australia has to do with the Reserve Bank of Australia interest rate, as well as the exchange rate policies, and transmission mechanisms. This serves to anchor inflation expectations, and has the responsibility of managing demand. This is with the aim of ensuring that the country’s economy remains on a stable path of growth, and maintains a low rate of inflation. Therefore, monetary policy and fiscal policy, as well as exchange rate, are three core aspects of Australia’s macroeconomic framework, which h ave been extremely important for the past two years, as these have provided a great level of flexibility for the country to deal with economic shocks that it experiences from time to time. Parkinson (2012) notes that the Australian macroeconomic policy framework is an asset and an endowment to the country, as it forms a core part of the country’s productive base. Nonetheless, for the past two years, these have been effective in ensuring that Australia addresses its economic problems, and the Australian government achieves its economic objectives. The Reserve Bank of Australia deals with all the issues pertaining the monetary policy. Nonetheless, a major aspect of the monetary policy, which the Reserve Bank of Australia utilizes is the interest rate. This interest rate influences differently other interest rates in the economy, so that the borrowers and lenders in the money markets come under the influence of the monetary policy. The Reserve Bank of Australia controls the inte rest rates in a manner that will ensure that the objectives of the Reserve Bank Act 1959 are attained. These include, and are not limited to ensuring a stable currency of the country, preventing unemployment, boosting living standards of citizens, and ensuring economic empowerment of the people (Reserve Bank of Australia 2013). In order to ease or loosen bonds, the Reserve Bank of Australia would buy bonds in order to create excess liquidity, putting downward pressure on interest rates, allowing increased consumer and investment spending, and finally lower the rate of unemployment. Similarly, when there is a possibility of the rate of inflation to increase, the Reserve Bank