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. 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 within this band. When economy is at boom, inflationary pressure increases as aggregate demand rises. RBA will tighten monetary policy through selling Commonwealth Government Securities to raise interest rates, hence slow down economic activity and control inflation rates. It is noted that the inflation rate have not significantly increased or changed over the past year, where it is quite stable with inflation ranging from 2.9% to current 3.3%. This shows that the monetary policy implemented is quite effective even though the current inflation rate (3.3%) is not within the narrow band of 2-3%. Interest rates can be moderated to boost or dampen the Australian economy. For instance,
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ACCT2542 - Evaluate the effectiveness of monetary policy...

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