Role of Fiscal Policy in Stabilizing the Australian Economy

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Introduction
The uninterrupted growth of Australian economy since the past 27 years makes Australia
one of the important economies in the world. Australia had so far experienced longest period of
economic expansion without facing the next stage of recession. In a sharp contrast to most other
advanced nations, Australia had successfully escaped Global Financial Crisis. The economy is
also trying to overcome the adverse consequences of the end of mining boom and maintain its
steady growth trend. Despite steady economic performance for a relatively long period, some
internal challenges in the economy has often be ignored. Some of the important structural issues
that the economy is currently facing include stagnant wage growth, relatively slower economic
growth, housing affordability crisis, increase in household debt, contraction of manufacturing
sector and growing concern regarding job security. Maintenance of economic stability thus
requires intervention of government and appropriate design of macroeconomic policy. Aim of
the essay is to evaluate the role of fiscal policy as a stabilization tool in Australian economy.
The structure of the essay are as follows. It firstly discusses current macroeconomic
environment of Australia to identify the current phase of business cycle of the economy. The
essay then evaluates the objectives of fiscal policy and influence of fiscal policy on aggregate
demand. Finally, the essay evaluates current fiscal policy in Australia along with discussing
limitation of fiscal policy in stabilizing the economy.
Current economic environment in Australia
The economic environment of an economy comprises of several indicators. In this regard,
the most important economic indicators include GDP growth, unemployment and inflation.

ECONOMICS2
Additionally, structural issues like housing affordability crisis, wage growth and state of
manufacturing sector are also relevant in discussing economic environment of Australia.
GDP growth
Figure 1: GDP growth of Australia
(Source: Tradingeconomics.com, 2019)
The economic growth of Australia in the first quarter of 2019 was 1.8 percent. The
growth is lower than that recorded in the previous quarter. The decline in economic growth is
mainly due to a decline in consumption expenditure and slowdown in fixed investment.
Household spending decline to 0.3 percent in this quarter compared to 0.4 percent. The gross
investment contracted by 0.7 percent. As against this government expenditure and export
increased by 0.8 percent and 1 percent respectively.

ECONOMICS3
Unemployment rate
Figure 2: Unemployment in Australia
(Source: Tradingeconomics.com, 2019)
The latest unemployment figure in Australia has revealed that seasonally adjusted
unemployment rate in Australia increased to 5.2 percent after the first quarter of 2019. The actual
unemployment rate is slightly above the market expectation rate of 5.1 percent. With this the