Transcript Chapter 21 - McGraw Hill Higher Education

PART 9
ECONOMIC POLICIES
Chapter 21
Macroeconomic management in
MONETARY
POLICY
Australia
Min.
Unemployment
FISCAL
POLICY
MACROECONOMIC
OBJECTIVES
INCOMES
POLICY
MICRO
ECONOMIC
REFORM
EXTERNAL
POLICY
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-1
Lecture Plan
• Macroeconomic objectives
–
–
–
–
–
Sound economic growth
Minimum unemployment
Minimum inflation
External balance
Potential conflict between objectives
• Macroeconomic management
–
–
–
–
Monetary policy
Fiscal policy
Prices and incomes policy
External policy
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-2
The Business Cycle
• Economic fluctuations (changes in the rate of GDP)
• The phases of the business cycle
–
–
–
–
Peak
Contraction (recession)
Trough
Expansion
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-3
Direction of major economic
indicators by business cycle phase
GDP
CPI
Unemploy- Savings
ment
• Peak
• Contraction
• Trough
• Expansion
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-4
Australia is a Mixed Economy
Government
sector
Private
sector
2001–2002: Government sector was responsible for 22% of
GDP while the private sector was responsible for 78%
Source: Primary data extracted from Table 16.2, Economics for Business 3E p. 283, using ABS data.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-5
Government Policies
• Microeconomic policies e.g. those which affect
individual components of the economy (e.g.
consumers, individual industries, firms, markets)
• Macroeconomic policies e.g. those which affect
the aggregate level of economic activity (including
total production, income expenditure and
employment)
• Goals of government policies
–
–
–
Reallocation
Redistribution
Stabilisation (economic management)
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-6
Objectives, Targets and
Macroeconomic Policy
Macroeconomic objectives
– Minimum unemployment
– Minimum inflation
– Economic growth
– External stability
Intermediate targets
e.g. CPI, the Budget deficit,
unemployment rate
Macroeconomic Policy Instruments
Monetary
Fiscal
Incomes
External
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-7
Tools of Macroeconomic
Management
• Fiscal (Budget) policy
• Monetary policy
• External policy
• Incomes policy
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-8
Fiscal (Budget) Policy
Concerned with government expenditure (G) and
government revenue (e.g. Tax)
(a) Balanced budget
(b) Budget deficit G > T
(c) Budget surplus G < T
Neutral
Expansion
Contraction
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-9
Monetary Policy (Central Bank)
• Measures to influence the rate of growth of the
money supply (MS) and interest rates (IR).
MS
IR
Expansion
MS
IR
Contraction
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-10
Incomes Policies
• Measures to influence the rate of growth of incomes
to prevent fast-rising incomes feeding into inflation
• Shift from government/union dealing (under the
Accord) to workplace negotiations between
employer and employees
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-11
External Policy
• Measures to influence the exchange rate and the
international competitiveness of the economy
Exchange rate
Competitiveness
Inflation
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-12
Conflicting Objectives in Economic
Management
• High employment and low inflation
• Economic growth and stable employment
• Employment stability and external balance
• Economic growth and income distribution
• Economic growth and environment protection
• Economic growth and living standards
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser
21-13