Applied Economics: Government Response to COVID-19 Pandemic

This report provides an overview of the economic measures taken by governments to mitigate the negative impacts of the COVID-19 pandemic. It explores the use of fiscal and monetary policies, including tax adjustments, fiscal stimulus packages, and changes in interest rates by central banks like the Reserve Bank of Australia (RBA). The report details the reasons behind these government actions, such as reducing unemployment and stimulating economic activity. It also analyzes the effectiveness of fiscal policy compared to monetary policy and discusses the potential consequences of large fiscal stimulus packages, including long-term benefits like increased foreign direct investment and employment. The report emphasizes the interrelatedness of economies and the importance of coordinated efforts to foster economic development during global crises.

APPLIED ECONOMICS

Table of Contents
Table of Contents.............................................................................................................................2
MAIN BODY...................................................................................................................................4
1. Economic measures used by government to minimize the issue............................................4
2. Presenting the reason of taking action by government to minimize COVID -19...................4
3. RBA steps with regard to monetary policy and its effect on economy...................................5
4. Fiscal stimulus package measure............................................................................................5
5. Reason behind fiscal policy to becoming more effective than monetary policy....................6
6. Consequences of large fiscal stimulus package......................................................................6
REFERENCES................................................................................................................................8

MAIN BODY
1. Economic measures used by government to minimize the issue
COVID- 19 affect the overall world’s economy in negative manner and that is why,
government of every country make decision in order to minimize the problem. For that
government should use Fiscal and monetary policy to solve the problem of recession. Such that
with the help of employ expansionary fiscal policy, government has to lower down the tax rate in
order to increase the aggregate demand as well as increase economic growth too (Li, 2020). This
Fiscal policy not only assists to improve recession time but also solve the problem of
unemployment. It is also analyzed that aggregate demand and supply do not always move
together and that is why if supply increases income automatically increases. That is why; this
Fiscal policy is introduced which in turn assist to improve the problem.
On the other side, monetary policy reflect that central bank use their own power over a
banking system. As to fight against COVID-19, central bank uses expansionary monetary policy
in order to increase the money supply along with quantity of loan by increase interest rates
(Pomson, 2019). Therefore, it is stated that by using this measure interest rates are lower which
reduce consumer’s cost of borrowing to buy heavy product like car, house. Overall it will assist
to reduce the cost of investment and assist to solve the problem of recession.
2. Presenting the reason of taking action by government to minimize COVID -19.
There is a need to introduce fiscal packages stimulus for the people because COVID-19
leads entire economy towards down. As it is hard to survive without job in this era and that is
why, with the help of introducing this packages, unemployment is reduces up to some level,
along with creates economic activity again. In addition to this, it is also analyzed that by taking
active stabilization approach to monetary and fiscal policy will help to smooth out the fluctuation
cycle and further reduce the severity of recession as well (Heine, Faure and Dominioni, 2020).
Beside this, Multiplier is also work with fiscal stimulus and that is why increase in government
investment spending will be successful in stimulating the economy. It is so because it leads to
cause multiple effects upon economy. Thus, introducing fiscal policy will help to regain
economic activity and balance it with earlier economy to cope up with adverse situation due to
pandemic. In addition to this another major reason for the government to take action for OCVID
19 situation is that many countries are interrelated and the effect of one economy affects the

other to a great extent. Thus, this is essential for government to try to build effective working and
take measures in order to increase the economic development so that related countries also get
chance for developing.
3. RBA steps with regard to monetary policy and its effect on economy
The RBA that is Reserve Bank of Australia has taken measures in order to make the
economy work in accordance with the current pandemic. For this under the monetary policy
RBA has currently set the rate of interest at 0.25% which is the lowest till now (RBA keeps
interest rate at 0.25% in October, 2020). This interest rate decrease has a good impact over the
economy as now the people within the economy can borrow money and against that they will
have to pay less interest. Thus, this change that is reduction in the interest rate will influence
more people to borrow money at lower interest rate and maintain and establish new and existing
business.
This will assist the overall economy to move in upward direction as this will have a great
impact over the economic condition and this will increase the economic condition after the
pandemic. The major reason is that when the money will be available to the company at lower
rate then they will borrow money from financial institution and will invest in their business and
its development. Hence, this will increase the flow of money within the economy which reduced
because of COVID 19. Hence, the measure under monetary policy of reducing interest rate will
increase the economic condition of Australia.
4. Fiscal stimulus package measure
Under the fiscal stimulus package measure the government of Australia has announced
for tax- free withdrawals from the superannuation funds. In addition to this the government also
made provision for business and non- profits organization to have tax free payment made to
some of the employers. Along with this with the motive of increasing the business investment the
government of Australia as reduced the taxes and tax depreciation write- off rules. The major
reason for the deduction in the taxes is that if the taxes will be low then this will increase the
interest of more businessmen to enter in the economy. This is particularly because of the reason
that when the companies will have to pay less of the taxes then this will motivate them to expand
more business. The major reason pertaining to the fact is that this will motivate the businesses to
increase their operation and this will assist in development of economy (Australia: tax
development in response to COVID- 19, 2020).

The major reason for this development is that if new businesses will increase then this
will increase employment within the economy and will also result in increase in the economic
development of the overall economy. The government of Australia is not targeting any specific
group or demographic in the economy rather the government is thinking for betterment of the
whole economy. This is particularly essential as this will result in the overall economic
development of the country and not of a particular sector (Sainsbury and Breunig, 2020).
Furthermore, another macro- economic factor which is included in the government policy
is that they also focused on increasing the employment within the economy. The major reason
underlying this fact is that this will assist the government in managing the economy of country.
The major reason for this is that when the employment within the country will be increased then
this will increase the working efficiency of the country. Hence, along with decrease in tax the
major fiscal policy stimulus was on increasing employment.
5. Reason behind fiscal policy to becoming more effective than monetary policy
With the present case study it was evident that the fiscal policy changes have a much
positive impact over the economy as compared to the monetary policy. The major reason for the
fiscal policy to be better than monetary policy is that fiscal policy deals in government changing
the taxes and spending on aggregate demand within the economy. On the other side the monetary
policy only focuses over the changes within the interest rates and the money supply. Further
another major difference in fiscal and monetary policy is that fiscal policies are set by the
government of country and the monetary policies are decided by the central bank of the country
(Andrew and et.al, 2020).
Hence, the government take decision by considering the development of the whole
economy whereas the bank only takes care of themselves and their industry. Further in the fiscal
policy there is no impact of the exchange rates and the changes taking place in the exchange
rates. But in case of the monetary policy there is high impact of the exchange rates and this result
in much fluctuation in the working of the economy.
6. Consequences of large fiscal stimulus package
All these fiscal stimulus packages that is the fiscal policy of the government has a great
impact over the working of the economy. The major reason underlying this fact is that when the
country has effective fiscal policy then it means that they have chances of reviving from the
pandemic. Thus, the major consequence of using fiscal stimulus package is that this assists the

country to have long run benefits. The major reason for this is that when the taxes are low within
the company then this will motivate other country companies to enter in Australia as they will
have to pay fewer taxes. Hence, this will result in the increase in the foreign direct investment
coming within the domestic country. Further, this will also improve the long run relation among
the countries who are trading with one another. In addition to this if trade relation will increase
among the two countries then this will increase employment as well. The major reason is that
when the countries will do business with one another than this will increase the opportunities for
business to grow in other countries as well.
Thus, this will result in the increase in the employment of the country. Along with this it
will benefit both the countries and as the employment will increase this in turn means the per
capita income of the people will also increase and then this will result in the increase in the
spending of the people (Benmelech and Tzur-Ilan, 2020). Thus, if spending will increase then
this automatically will increase business of other sectors of economy as well. Thus, in the end it
can be concluded that the fiscal policy will result in better development of the economy and this
has positive outcome.

REFERENCES
Books and Journals
Andrew, J., and et.al, 2020. Australia's COVID-19 public budgeting response: the straitjacket of
neoliberalism. Journal of Public Budgeting, Accounting & Financial Management.
Benmelech, E. and Tzur-Ilan, N., 2020. The determinants of fiscal and monetary policies during
the COVID-19 crisis (No. w27461). National Bureau of Economic Research.
Heine, D., Faure, M.G. and Dominioni, G., 2020. The Polluter-Pays Principle in Climate Change
Law: An Economic Appraisal. Climate Law. 10(1).pp.94-115.
Li, C., 2020. The rationality principle as a universal grammar of economic explanations. Journal
of Philosophical Economics. 13(1).
Pomson, O., 2019. Does the Monetary Gold Principle Apply to International Courts and
Tribunals Generally?. Journal of International Dispute Settlement. 10(1).pp.88-125.
Sainsbury, T. and Breunig, R., 2020. The urgent need for Tax Reform in Australia in the
COVID-19 World. AUSTRALIAN JOURNAL OF LABOUR ECONOMICS. 23(2).
Online
Australia: tax development in response to COVID- 19. 2020. [Online]. Available through: <
https://home.kpmg/xx/en/home/insights/2020/04/australia-tax-developments-in-
response-to-covid-19.html >
RBA keeps interest rate at 0.25% in October. 2020. [Online]. Available through: <
https://mozo.com.au/reserve-bank-interest-rates#:~:text=Despite%20speculation
%20that%20an%20October,the%20historic%20low%20of%200.25%25. >