ACCT2542

ACCT2542 - Evaluate the effectiveness of monetary policy...

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Evaluate the effectiveness of monetary policy and fiscal policy in achieving Australia’s current economic objectives. Plan - Definition of monetary and fiscal policy - Current economic objectives - What have been implemented - Effectiveness, by data, statistics and limitations. Monetary policy’s effectiveness Inflation - higher interest rate to achieve price stability (theory plus statistics) Low interest rate to boost economic activity, increase AD, hence lower u/e (theory plus statistics) External stability, use of interest rate Macroeconomic policies are designed to stabilise economic activity, find a sustainable balance between economic objectives through working on the demand side of economy. Monetary policy and fiscal policy are implemented to achieve Australia’s current economic objectives, i.e. economic growth and quality of life, full employment, price stability, external stability, environmental sustainability and distribution of income. It is noted that monetary policy and fiscal policy are generally effective despite their limitations, which is shown in recent statistics and data in Australian economy. Monetary policy refers to the use of interest rates to affect demand and stabilise the economy by Reserve Bank of Australia in short term. Its stated goals are price stability, economic growth and full employment . However, it also plays an important role to achieve external stability . Statistical evidence suggests that monetary policy is generally effective in recent Australian economy although it has some limitations. Price stability is a dominant objective of monetary policy. In mid 1990s, RBA set inflation rate target 2-3% over the course of the business cycle, hence the effectiveness of monetary policy in achieving price stability should be judged on how effective it is as keeping inflation
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ACCT2542 - Evaluate the effectiveness of monetary policy...

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