How Australia Avoided Recession During the Global Financial Crisis

Running Head: HOW AUSTRALIA AVOIDED RECESSION 1
How Australia Avoided Recession During the Global Financial Crisis
Student’s Name
University of the Sunshine Coast Queensland, Australia

HOW AUSTRALIA AVOIDED RECESSION
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How Australia Avoided Recession During the Global Financial Crisis
1. Classifying the economist behind the statements
These are the words of a Keynesian Economist. A delve into the reasoning
surrounding their statement proves their identity as hereafter discussed. First, the reform to
which the economist in question refers seems to advocate for an unequal distribution of
income and wealth in the society which resonates well with the ideas of Keynes. According
to Re us s (2 00 9), Keynesians favour the existence of inequalities as they see them as a
source of incentive for valuable economic activities. Therefore, such reasoning does not
appear to attempt eliminating the disparity in its entirety. That tendency is popular with the
Keynesians which qualifies the economist in question as one.
Secondly, the austerity hereto referred points towards interventionist strategies in
which Keynesian economic theory believes. The economist appears to support the plausibility
of tax cuts on the rich. That reasoning is in alignment to the Keynesian thoughts that a
progressive tax is considered to be beneficial to society. Cognizant to the Keynesian idea that
a government can influence the recovery of the economy by cutting taxes or increasing
spending as held by Mankiw (2015), the economist here is Keynesian. If the economist were
neoclassical, they would show that the suggested tax and reduced services would take a long
time to take effect. In that respect, they would observe in the statement that there is a
possibility that implementation of the suggested measures would take time and that they
would end up exacerbating the economic cycles rather than remedy the situation.
Neoclassical economists believe that such fiscal policy implementation are sluggish given
the slow environment involving political decision making.
2. How Australia avoided recession during the Global Financial Crisis (GFC)

HOW AUSTRALIA AVOIDED RECESSION
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Australia avoided recession mainly because of the Chinese stimulus and the Rudd
government’s fiscal measures. The prices of coal and iron ore, the main exports of Australia
increased at the onset of the recession (Quiggin, 2015). China, being the major importer of
the commodities, increased its imports hence helping Australia to increase its GDP. At this
point, the net exports component of GDP increased. That way, the drop in economic growth
was matched by improved exports shielding the economy from recession.
Secondly, the Kevin Rudd led government increased its consumption hence buoying
the economy when the household expenditure was falling. Additionally, the stimulus package
provided by the government involved an increased government investment in infrastructure
and some business tax breaks. These measures were better than the extreme austerity
measures that were employed by the rest of the developed world. The net effect of increased
investments, reduced taxes, more public spending matched the impact of the oncoming
recession hence preventing it.
3. The logic behind the supposed mining boom helping to avoid recession
Assuming that the mining boom aided safe sailing of Australia through the global
financial crisis can be potent. It can be rightly so because mining affects many components of
the GDP including investments, government consumption, and exports. For instance, the
Australian government would need to inject more capital into the extraction of various
minerals given the capital intensive nature of the production process (Downes, Hanslow &
Tulip, 2014; Tulip, 2014). As such, government expenditure on investment would increase
and so will the GDP. The mining boom would increase the demand for domestic tourism
(Pham, Bailey &Spurr, 2013). The growth promotes increases in wages and therefore
encourage households to tour non-mining states within the country.