Economic Stimulus and Unemployment in Australia


Added on  2019-11-26

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Running head: REDUCING UNEMPLOYMENT1Reducing UnemploymentStudent’s nameProfessorCourseDate
Economic Stimulus and Unemployment in Australia_1

REDUCING UNEMPLOYMENT2IntroductionThe governments often employ both monetary and fiscal instruments to stabilize the economy. During seasons of depressed demand, expansionary policies such as reduction in the interest rates, tax cuts and increase in government expenditure are employed. On the other hand, when the economy is overheating, the governments deploy contractionary policies[ CITATION Joh151 \l 1033 ]. Therefore, this article examines how the monetary and fiscal policies can be usedto reduce unemployment. Monetary PolicyReduction of the Bank Rate The bank rate refers to the rate at which the central bank lends money to the commercial banks. This policy plays a vital role in determining the amount of money in the economy. When the central bank wants to increase the level of employment, it lowers the bank rate to encourage the commercial banks to borrow more money. The commercial banks will then lower their lending rates leading to an increase in borrowing by the public. As a result, the consumption levels in the economy will increase leading to expansion of businesses and a growth in investments[ CITATION Man141 \l 1033 ]. The expansion and establishment of new firms will provide jobs to the individuals and hence a reduction in the level of unemployment.
Economic Stimulus and Unemployment in Australia_2

REDUCING UNEMPLOYMENT3Figure 1: Source: Business InsiderThe Reserve Bank of Australia has made a significant cut the cash rate since the onset of the Global Financial Crisis (GFC). In 2007, before the GFC, the Australia’s cash rate was 7.25%.However, when the crisis began in 2008, the Reserve Bank of Australia reduced cash rate to 3%. This policy action, along with other fiscal instruments, helped Australia to avoid recession and thus protected the citizens from massive employment loss that was witnessed in advanced economies. The current cash rate stands at 1.5%[ CITATION Sim17 \l 1033 ]. These significant cuts in the cash rate have had a considerable impact in stimulating different sectors of the Australia’s economy. For example, the current boom in Australia’s housing sector is partially attributed to the low cost of borrowing. More houses are being constructed thus providing employment opportunities to many people. Open Market Operations
Economic Stimulus and Unemployment in Australia_3

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