ECON6001 Economic Principles

Running head: ECONOMIC PRINCIPLES
Economic Principles
Name of the Student
Name of the University
Course ID

ECONOMIC PRINCIPLES1
Table of Contents
Answer a..........................................................................................................................................2
Inflation targeting policy in Australia and Canada..........................................................................2
Australia.......................................................................................................................................2
Economic outcome of inflation targeting policy in Australia.....................................................2
Canada.........................................................................................................................................4
Answer b..........................................................................................................................................7
Impediment to inflation targeting policy in Canada........................................................................7
Answer c..........................................................................................................................................9
Fiscal policy in Australia and Canada during global financial crisis..............................................9
GFC and Australia fiscal policy..................................................................................................9
GFC and Canada fiscal policy...................................................................................................10
Answer d........................................................................................................................................11
Minimizing the impact of global financial crisis: Canada and Australia......................................11
References......................................................................................................................................14

ECONOMIC PRINCIPLES2
Answer a
Inflation targeting policy in Australia and Canada
Australia
The attempt to adapt an inflation targeting policy in Australia began since 1993.
Governor Fraser took the initiative to set the targeted inflation within 2 to 3 percent. Unlike
Canada an =d New Zealand, there was no sudden shift in policy regime in Australia. There was
neither any formal agreement between central banks and government during this time. Instead,
RBA took a medium term strategy along of inflation targeting in relation to existing institutional
set.
Economic outcome of inflation targeting policy in Australia
Inflation
During 1970s and 1980s, Australia accounted a poor record for balancing inflation.
Inflation rose to a relatively high level following oil price shocks and a large upward shift in
wags during 1970s. The inflation rate in Australia was relatively high than other OECD nations
for the entire period of 1980s with average inflation being 8.5 percent (Melino, 2012).

ECONOMIC PRINCIPLES3
Figure 1: Trend in year ended inflation rate in Australia
(Source: Melino, 2012)
Several monetary policy tools were used during this time to stabilize the economy. Until
1980s, government maintained fixed or adjusted pegged exchange rate regime. After the regime
of floating exchange rate in 1983, attempt was taken to achieve monetary targeting through
checklist approach. The inflation though had declined after 1990/91, there remained a risk of
rising inflation following further recessionary hit. Since the undertaking of the policy of inflation
targeting, inflation rate in Australia averaged to 2.6 percent. The inflation outcome in Australia
was consistent with the targeted inflation (Debelle, 2018). After the introduction of inflation
targeting, fluctuation in the interest rate decline significantly with inflation varying around 2.5
percent.
Output
The economic growth rate in Australia averaged around 3.7 percent since the inflation
targeting policy. The average growth rate was higher than that during 1970s and 1980s with
growth rate being 3.25 then. The economy of Australia not only gained in terms of higher
average growth but also in terms of a lower volatility in output (Bernanke et al. 2018). The
standard deviation of year ended GDP growth was 1.1 percent in 1990s as compared to a
standard deviation of 2.5 during 1980s and 1970s.