Economic Principles & Decision Making

ECONOMIC PRINCIPLES & DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Current Economic Situation in Australia.........................................................................................1
Detailed analysis of target set by RBA Governor............................................................................2
Will monetary and fiscal policy measures alone be sufficient to revive the slowing Australian
economy?.........................................................................................................................................3
Recommendation.............................................................................................................................8
CONCLUSION................................................................................................................................8
REFERENCES............................................................................................................................................9
Figure 1Public expenditure in Australia..........................................................................................6
Figure 2Change in public expenditure value...................................................................................7

INTRODUCTION
Australia is one of the developed nation of the world currently struggle to revive its
economy. Over 2008 recession country economic growth is restricted to low level. In order to
solve such a big problem Government of Australia increase public expenditure bring tax reforms.
Moreover, the central bank of Australia also reduces its cash rate consistently. In the current
research study all these efforts are evaluated in detail and it is identified whether such kind of
efforts brings completely economy of Australia on track or there is need to take any other action
to handle the situation. At the end of the report, conclusion and recommendation section is
prepared
Current Economic Situation in Australia
Australia, as can be adequately stated is an extremely well-developed economy with the GDP
growth of 2.7% in the year 2018 and an estimated growth of 1.7% in the year 2019. It has been
categorised as the 13 largest economy in the entire world and has been awarded a record for
maintaining an uninterrupted growth in GDP for as long as 26 years. The service sector is the
most dominating factor in Australia with the total GDP comprising of 61.1% with the natural
resources of the economy being as much as eighth highest total value in entire world. The
Australian Securities Stock Exchange is also one of the largest i.e. 16th largest stock exchange in
the entire world (Australia Economic Snapshot, 2019). However, it can be observed that despite
the growth and prosperity of the Australian economy, the labour market has been resilient and
the unemployment stakes have risen up as high as only three OECD member countries were
found to be in the top tier of jobless country rates with Austria, Turkey and Australia. It can be
further highlighted that although the GDP of Australia has constantly been on rise however it has
still fallen from its first place in GDP growth amongst the OECD member countries to it falling
down to sixth and seventh rating. The interest rates, after the global recession in the year 2007-
08, affected the interest rates in economies all over the world and the banks and other institutions
dependent on the interest as their income were seriously affected. Similarly, the Australia’s
interest rates also plummeted down and in order to re-strengthen the financial position of the
economy, it was found that even 1.5% was considered as a high interest rate and negative real
interest rates. However, it was although expected that the heavy loans that the economy was
taking after the Global Financial Crisis (GFC), it was estimated that the debt position of the
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country would have deteriorated heavily, but it was found that the managed manner in which the
country took loans ensured that their position was at third lowest in context of all the OECD
countries.
After observing the strong movement of the economy of Australia, it needs to be determined and
analysed that what are the reasons behind the further reduction in the cash rate by 1% points out
that the economy is not progressing and it needs to be revived due to the losses that it is incurring
(Guttmann and et.al., 2019). The monetary policies of the country helps in determining the
inflation or deflation levels that the country is experiencing, the influence of interest rate on the
control in economy etc. and the Australian government tends to improve inflation ranging
between 2 to 3% and the fiscal policy that determines the various tax rates that the government is
implementing and the balance of payment and balance of trade amount. The government wants
to reform the entire economy based on these two policy measures and although these are two
important pillars of the entire economy, but these are not the only pillars. In the following
section, of the report, various aspects related to these contexts will be analysed in detail giving
pros and cons of different aspects and points.
Detailed analysis of target set by RBA Governor
RBA Governor set a target to increase the inflation rate up to 2% from 1.6%. In order
to analyse target, set by the Governor it is very important to comprehend the current economic
scenario that persists in Australia. Due to elevation in unemployment rate people start saving
more and due to this reason inflation rate is stuck at 1.6%. There are two reasons behind
increase in saving from people side. One of them is that because if one become unemployed
in the family, then due to this reason, its burden automatically comes to another person of the
family then due to this reason, its burden automatically comes on another person of the family
(Debelle., 2019). The second reason is that elevation in unemployment rate creates a fear
factor among people and due to this reason people start saving more and more money so that if
they get unemployed then in that case sufficient deposit remain with them to fulfil their needs
and requirements during unemployment time periods. Thus, these are the two reasons because of
which inflation rate is low in Australia. Shift from consumption to saving behaviour is the main
reason behind the low inflation rate. If people spend less in the market than business firms earn
less profit in business which lead to higher unemployment in the domestic economy. This further
fuel problem for nation. This is the reason due to which Governor of the Reserve bank of
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