Economics in Modern World | Assignment

Running head: COMPARATIVE MACROECONOMIC ANALYSIS
COMPARATIVE MACROECONOMIC ANALYSIS
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COMPARATIVE MACROECONOMIC ANALYSIS
EXECUTIVE SUMMARY
In the modern world, economic policies play pivotal role in the functioning of the economy
as a whole taking care of the all the national economic challenges. Securing equilibrium and
driving the equilibrium towards stability are something greatly depend on what and how the
macroeconomic policies are undertaken. Role of fiscal and monetary policies are the tools
implemented in achieving so. The report analyses and compares the economic performance
of USA and Australia based on the major economic indicators. The motive is to analyse if
and how the economic movement of the USA impacts Australian performance. It has been
found that Australia and USA are greater trade partners of each other. USA is being world
largest GDP holder, creates much of the impact on the countries associated with trade if any
downfall appears in the economy. Australia is one such small country being greatly impacted
by the USA not always directly but indirectly due to the impact of crises.

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COMPARATIVE MACROECONOMIC ANALYSIS
TABLE OF CONTENT
INTRODUCTION:....................................................................................................................3
DISCUSSION:...........................................................................................................................3
IMPORTANCE OF MACROECONOMIC POLICIES:.......................................................3
MACROECONOMUC POLICIES OF AUSTRALIA:.........................................................4
MACROECONOMUC POLICIES OF USA.........................................................................7
COMPARATIVE STUDY: AUSTRALIA & USA...................................................................9
CONCLUISON:.......................................................................................................................16
REFERENCE...........................................................................................................................17

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COMPARATIVE MACROECONOMIC ANALYSIS
INTRODUCTION:
Australia and USA are two significant economies of the world in modern days, former
already world’s largest economy in terms of nominal GDP and the latter owe sits importance
in the very fact that it is a small economy with huge untapped potential to grow. The
Australian economy consists of world’s one of the biggest mixed market economy possessing
the rank of second wealthiest nation in terms of wealth held per adult. The country is mostly
service sector driven that contributes 61% to GDP. These facts reveal how important these
national economies are to the world economy.
This report aims to present an analytical discussion of both the national economies’
performance over the years and what implication the individual national economic condition
has on each other.
The paper depicts the operating macroeconomic policies of these countries and their
analysis in meeting the economic issues the nations are suffering from. In order to critically
analyse whether USA is having a recessionary trend in its GDP and Australia an
expansionary one, a comparative study of various economic indicators like GDP growth rate,
interest rates, net export growth rate and annual exchange rate movement have been
conducted based on the data collected from various sources.
DISCUSSION:
IMPORTANCE OF MACROECONOMIC POLICIES:
Any country broadly consists of two types of market, goods market and money
market. The economic performance of the country depends on the simultaneous equilibrium
of both the markets. Whenever the economy is found not to be in equilibrium it implies the

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COMPARATIVE MACROECONOMIC ANALYSIS
country is has not arrived at its stability. To push the economic operation towards stability
that is to boost the national GDP consistent with full employment level, the government
undertakes macroeconomic policies. These policies are implemented through two sets of
channel: Fiscal &Monetary Policies.
While the monetary policy take care of the level of money supply in the economy
fiscal policies plays instrumental role to influence economic activity carried out by
government expenditure. The level of money supply is pivotal element to determine the rate
of interest and price level operating in the economy. Based on the economic situations,
government adopts expansionary or contractionary monetary policies by buying bonds and
assets or selling them respectively. More money supply implies low interest rate that boosts
investment and production that further boosts consumption. To influence overall economy the
fiscal policy plays important role that helps economy reach its full employment equilibrium if
it is away from it. Government expenditure in forms of initiation of any public project or
application or removal of tax are the important instruments of fiscal policies that impacts the
overall income and consumption level further.
MACROECONOMUC POLICIES OF AUSTRALIA:
Monetary:
Monetary policies are the principal tool that supports the aggregate demand of
Australia throughout years. The Reserve Bank of Australia is responsible for adopting
monetary policies that bring money market equilibrium which further contributes to the
national equilibrium. The broader function of monetary policy is to design interest rate
applicable in money market credits. The cash rate further impacts other interest rates which
reflects in the behaviours of the borrower and lender, investors influencing the economic
activity as a whole and price level issues leading to inflation.

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COMPARATIVE MACROECONOMIC ANALYSIS
The biggest motive behind adopting specific monetary policies is to maintain stable
price level in the economy with presence of full employment leading to economic prosperity
and general welfare of Australia. To materialise these objectives, the RBA follows an
inflation target that allows the consumer price inflation to lie between 2-3% over the medium
term of the economy. The underlying motivation behind such target is to check the money
supply level in the economy that not only keeps the inflation within control but also preserves
the value of money encouraging strong growth with sustainability over long term in the
economy.
The monetary policy reflects partially the success of fiscal policy being able to curb
the deficits arising from the expansionary fiscal policy to fight back the glob financial crisis
giving birth to larger public debt. The controlled inflation leads to higher rate of interest that
USA. Monetary stimulus has been consistent with the RBA’s medium-term inflation target
band of 2% to 3% (Figure 7), as inflation has been low, and interest rates are higher in
Australia than in the United States or the euro area (Figure 14). Unless downside risks
materialise, the current supportive stance of monetary policy remains appropriate at present,
particularly in the absence of inflationary pressures. However, a side effect is a risk that
accommodative policy may be increasingly distorting financial markets and, especially,
house prices (which have risen to very high levels). Eventually, rates will need to be
normalised, but the timing and pace will depend on developments in growth, employment,
inflation, and the housing market.
Fiscal:
Australia enjoys comparatively lower tax burden, public spending and public in the
recent times among other OECD countries.