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Australia's Macroeconomic Policies Affect The Whole Economy

1649 Words7 Pages

Macroeconomic policies affect the whole economy in which they are policies which aim to minimise fluctuations in the business cycle. In order to obtain a strong and stable level of economic growth, and minimise the harmful effect of inflation and unemployment, government intervene through economic stabilisation policies. Monetary policy is a macroeconomic policy that aims to influence the cost and supply of money in the economy in order to influence economic outcomes such as economic growth and inflation. The Reserve Bank of Australia (RBA) administers monetary policy by influencing the level of interest rates and the cost credit by conducting Domestic Market Operations (DMOs) to affect the official cash rate target. The Reserve Bank has an operating target of 2%-3% consumer …show more content…

Therefore, when there a high inflation pressure, the RBA intervenes by tightening monetary policy to reduce inflation, wheereas in the low economic growth and rising unemployment, may ease monetary policy to support spending and growth. Expansionary monetary policy has continued to underpin economic growth as Australia transitions to non-mining sources of growth. Economic growth was 2.4% over the year to the December quarter 2016, below trend, but enough to keep employment growing and extend Australia’s growth record to 26 consecutive years. The effects of changes in the stance of monetary policy on the level of economic activity operate through various transmission channels and take time to have an effect on economic activities. Changes have effects on savings and investments, cash flow and asset prices. In the short run, monetary policy influences inflation and the economy demand for goods and services and, therefore, the demand for the employees who produce those goods and

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