3312AFE: Macroeconomic Policy Analysis

Added on -2020-02-24

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Word count: 2136 BUSINESS CYCLES 1BUSINESS CYCLESBy (Name)Name of the class (course)The Course instructor (Professor)The InstitutionThe City and State locationThe Date
BUSINESS CYCLES 2Table of Contents1.0.Introduction...........................................................................................................................32.0.Literature Review.................................................................................................................33.0.Business Cycles in Australia................................................................................................43.1.Causes of Recessions........................................................................................................43.1.1.Deterioration in Terms of Trade................................................................................43.1.2.Global Capital Markets..............................................................................................53.1.3.Tighter Monetary and Fiscal Policies........................................................................53.2.Causes of Booms...............................................................................................................63.2.1.Floating Exchange Rate.............................................................................................73.2.2.Growth in Productivity..............................................................................................73.2.3.The Housing Boom....................................................................................................83.2.4.Export Growth...........................................................................................................93.3.Consequences of Business Cycles..................................................................................104.0.Did the monetary and fiscal instruments interventions of GCF differ from those of 1930s Great Depression?..........................................................................................................................114.1.Monetary Policy..............................................................................................................114.2.Fiscal Policy....................................................................................................................134.3.Effectiveness of the Policies...........................................................................................134.4.Limitations of the Policies..............................................................................................14
BUSINESS CYCLES 3Conclusion.....................................................................................................................................15Bibliography..................................................................................................................................16
BUSINESS CYCLES 41.0.IntroductionCountries across the globe experience ups and downs in the economic activity. In some years, a good number of industries operate below capacity and unemployment surges while in other years industries booms and unemployment reduce. The period of economic downturn is referred to as recession and moments of economic prosperity is known as booms or expansions[ CITATION Arn13 \p 56 \l 1033 ]. Therefore, this paper explores the causes and outcomes of business cycles in Australia. The application, effectiveness, and limitations of monetary and fiscal instruments in stabilizing the economy are also discussed. Besides, this study seeks to understand whether the economic policies applied by Australia during the Global Financial Crises differed from those used during Great Depression of the 1930s. 2.0.Literature ReviewStudies show that a variety of factors are responsible for business cycles encountered in an economy. Some of the factors include interest rates, consumer and business confidence, and the multiplier effect. Interest rates directly impact the consumer expenditure and finally economic growth. When the interest rates are cut, individuals borrow more money resulting in a higher spending and increase in economic growth. On the other hand, a hike in the cost of borrowing results in a decline in household consumption and investments and hence economic downturn[ CITATION Joh151 \p 42 \l 1033 ]. Some economists also attribute the business cycles to consumer and investor confidence. During the recovery phase, the consumers and investors are confident and optimistic, and thus they increase their consumption and investment causing economic growth. Since consumption

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