Re: 2015 HSC Economics Marathon
- Expansionary monetary policy -- as of May 2015, historically low interest rates of 2%.
AD = C+I+G+(X-M) --> expansionary monetary policy aims to increase consumption and investment through the ability to borrower at a lower rate of interest, increasing AD and stimulating growth. In doing so, this should increase employment opportunities since labour is a derived demand from the demand of goods and services.
- Mildly contractionary fiscal policy: With the aim of returning the budget to surplus, the fiscal outcome is said to be mildly contractionary, reducing govt. expenditure (G of AD equation). If this is reduced, this would result in a decrease in AD, reducing overall growth rates and reducing the number of employment opportunities. One such example from the 2015 Budget is the Writing off of the Cth $1.5B contribution to the East-West Link in Melbourne. However, other policies attempt to reduce the UE rate, such as the 2015 $330m Youth UE Strategy as an example of a labour market policy targeting structural UE; attempting to provide unemployed youth with the skills necessary to find employment. This would be an example of micro-reform as it is addressing the structural issues of the economy; promoting a re-skilling of the labour force.
It is clear that the stances of macro policy, both fiscal and monetary, oppose each other (monetary being expansionary and fiscal being contractionary). In this way, the effect on UE in the Australian economy hasn't been extremely effective. It can be seen currently that UE has been rising --> During GFC -- UE = 5.8%, currently as of August, UE = 6.2%. Thus it is clear that due to the lack of consistency of macro policies, the aim of lowering UE has been quite ineffective.
