1. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-1 PART 9 ECONOMIC POLICIES Chapter 21 Macroeconomic management in Australia Economic growth Min. Inflation External Stability MACROECONOMIC OBJECTIVES Min. Unemployment MICRO ECONOMIC REFORM FISCAL POLICY EXTERNAL POLICY INCOMES POLICY MONETARY POLICY

2. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-2 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

3. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-3 The Business Cycle Economic fluctuations (changes in the rate of GDP) The phases of the business cycle – Peak – Contraction (recession) – Trough – Expansion

4. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-4 Direction of major economic indicators by business cycle phase Expansion Trough Contraction Peak SavingsUnemploy- ment CPIGDP

5. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-5 Australia is a Mixed Economy 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.

6. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-6 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)

7. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-7 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

8. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-8 Tools of Macroeconomic Management Fiscal (Budget) policy Monetary policy External policy Incomes policy

9. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-9 Fiscal (Budget) Policy Concerned with government expenditure (G) and government revenue (e.g. Tax) ( a) Balanced budgetNeutral (b) Budget deficit G > T Expansion (c) Budget surplus G < T Contraction

10. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-10 Monetary Policy (Central Bank) Measures to influence the rate of growth of the money supply (MS) and interest rates (IR). MS IRExpansion MS IRContraction

11. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-11 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

12. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-12 Measures to influence the exchange rate and the international competitiveness of the economy Exchange rate Competitiveness Inflation External Policy

13. Copyright  2005 McGraw-Hill Australia Pty Ltd PPT Slides t/a Economics for Business 3e by Fraser, Gionea and Fraser 21-13 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