Fiscal and monetary policies provide our government and the Federal Reserve with two powerful tools to regulate our economy (Investopedia, 2018). They are interconnected and subsequently serve as guidelines to maintain positive economic growth, aim for full employment and sustain low inflation.
The Reserve Bank of Australia implements the monetary policy, which is the main macroeconomic policy in Australia used to stimulate the level of Australia’s economic growth and maintain a strong financial system. The policy is predominantly concerned with influencing the demand and supply of money and credit in the economy, primarily through the use of interest rates in order to achieve the three main government policy objectives. These includes low inflation, reducing the level of unemployment and stimulating the economic prosperity and welfare of the Australian people (Tim Dickson & John O’Mahony, 2009). This is cumulatively achieved through the actions by the Reserve Bank of Australia, on behalf of the government, specifically, through the main instrument
…show more content…
Specifically, when there are fluctuations to taxes, high unemployment rates and government spending on goods and services. Therefore, when the government applies expansionary fiscal policy it affects all Australians as it seeks to expand the amount of money available to the population to encourage economic growth (Investopedia, 2018). This has positive effects on the GDP and private investments as this increase in money supply allows consumers to pay less tax. This results in more disposable income and successively allows consumers to spend more causing an increase in the demand and supply of goods and services. This subsequently allows business to make capital expenditure and therefore decreases the number of