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Assignment Problems (economic policy)
The assignment problems are based on the economic policies which are monetary policy and fiscal policy and assigned these two policies to specific economic situation in order to reach the particular economic target, such as inflation target and exchange rate.

Monetary Policy and Fiscal Policy
The main goal of monetary policy is both to promote the employment and the price stability. Monetary policy can be provided by the central bank to stimulus the economic when the country is experiencing the downturn which means the economy is below the level of the full employment and its inflation target. Conversely, the central bank needs to implement the restrictive policy when the economy is overheated, and the inflation is above the target. For instance, in US, the monetary policy is decided by the Federal Open market committee (FOMC). When the economic is experiencing the downturn, which means the overall aggregate demand slows relative the full employment of output, unemployment tends to rise and the inflation rate declines, the FOMC helps stabilize the economy by stimulating the overall demand through the expansionary monetary policy that lowers the interest rate. Alternatively, increases the interest rate.(Fed Reserve Board, 2018)

Fiscal policy is the use of the government spending and the taxation to control and influence the economy. When the government decides to purchase the goods and services and the cut in taxation, it is implementing the fiscal policy to influence the economic situation. Fiscal policy can be said of tight or contractionary when the government is trying to slow down the economy and said of loose or expansionary when the government decides to enhance the economy.(David, W, (N/N))

Monetary Policy with Assignment

 * Monetary policy in Australia is determined by the reserve bank board through the cash rate target. The cash rate is the market interest rate for overnight loans which has a strong influence on other interest rates. (Reserve bank of Australia, (N/N))


 * To increase consumers and business spending, reserve bank makes the reduction in the deposits rate intend to increase the incentive for households to spend their money rather than save it. Reduce the lending rate can encourage consumers borrowing more from the bank as they face lower repayment. This will also increase spending by the business due to the higher returns of the investment than the cost of borrowing. (Reserve bank of Australia, (N/N))


 * To reach the low exchange rate target, exchange rate, the reserve bank would decrease the cash rate, it means the interest rate in Australia falls compared to other countries. Lower interest rate will reduce the returns that investors invest in Australia relative to other countries, this will lead to a reduction in demand of assets in Australia, investors shift their funds to invest in other countries instead and the demand for Australia dollar decreases. Consequently, the reduction in interest rate will definitely decrease the exchange rate. Moreover, to reduce the relative price of domestic goods and services in Australia, a decrease in value of the Australia dollar will significantly increase power for Australia products to compete with overseas goods and services. It is obvious that the Australia goods and services become much cheaper than overseas goods and services, will consequently lead the increase the quantity of Australia exports. From the domestic economic view, according to the depreciation in Australia dollar, the imported goods and services will become more expensive for domestic consumers and firms than before. Due to the price change, which is the main factor that change consumers preference to consume on similar goods, Australia people are more willing to change their consumption to domestic products that produced in Australia and decrease the quantity of imports. Relative to the increase in exports and decrease in imports as a lower value of Australia dollar, will mainly have an effect on the demand for tradable goods and services. The lower rate also has the implication on the increase in domestic non-tradable goods and services that produced in Australia. In order to satisfy the increased demand for their products, the firm would employ more workers, which will eventually drive the lower unemployment and increase employment rate in Australia. (Reserve bank of Australia, (N/N))


 * To increase in people wealth. Central bank lowers the interest rate to encourage the demand of assets by supporting the assets prices, such as housing and equities. An increase in assets price directly increases people wealth. Furthermore, this will lead to a higher consumption and investment as households normally spend some share if there is any increase in their real wealth. (Reserve bank of Australia, (N/N))

Challenges to make Monetary Policy
Trying monetary policy to make a simple policy rule can be simplify the central bank communication with the public and make monetary policy predictable and easy to understand by the public. According to this argument, the monetary policy can potentially make the monetary policy more effectively to help consumers and firms’ future expectation on spending and investment. However, the conclusion depends on a number of assumptions that are hard to hold in the real world, for instance, the research assumes that the structure of the economy is perfectly understand by the policymakers and the public, and the economy can be explained by a series of simple equations. These are all the basic assumptions on this conclusion. Nevertheless, the structure of the economy is not certain for all the time.

Fiscal Policy with Assignment

 * The objective of implementing the fiscal policy is supply public goods which can also be said as infrastructure that contributes to population welfare and economy long-term growth, and it can also be used to stabilize the cyclical fluctuations of the economy. The government budget is the direct tool for people to understand the fiscal policy. Australia government implemented the counter-cyclical stance of fiscal policy, which means the successive budget surplus and the proceeds of assets sales have contributed roughly equally to the elimination of general government net debt after mid 1990s (David, G and Amanda, S, 2005), is aimed to achieve two key objectives: promoting the long-run growth and the stable economy. It is the important understanding for a country to have the cyclical stabilization. A more stable economy encourages investments, which will strengthen the long-run economic growth of a country as a return. (Fabrizio, C. 2013)


 * The charter of budget honesty act 1998, is the framework of fiscal policy that Australia government conducts which aims to improve the domestic fiscal outcomes. The fiscal strategy implanted in this charter is based on the principles of sound of fiscal management and by facilitating of public scrutiny of fiscal policy and performance (Federal register of legislation, 2014) . The principles of sound of fiscal policy can be analysis that the government is to manage financial risks faced by the commonwealth, such as trying to maintain the commonwealth general government debts at the controllable level. Government also need to ensure their fiscal policy can successfully contribute to achieve the target national saving and to keep the economic condition with the stable trend. The sound of fiscal policy also includes that government needs to reasonably regulate the tax policies and government spending and show the stability in the level of future tax burden.

Challenge in Fiscal Policy
In the short period, government can stimulate the aggregate consumption by reducing taxes and this boost to the consumption can be partly offset by a extent of crowding out effects in the short run since the higher aggregate consumption can lead a higher interest rate which relatively reduce the investment level or an appreciation of the Australia dollar reducing the exports. However, there is a strand of literature that called Ricardian equivalence which suggests that the fiscal policy will not enhance the consumption, saving and growth (Blair, C, Stephen, A and Ben, F, 2002). Ricardian equivalence is built based on the insight of the lower taxes and the government budget deficit, without any changes in the government spending and increased taxed in the future, if individuals can successfully forward looking the future economic situations to the unchanged tax burden in the future. As the consequence that they will save the whole tax cut to meet the future tax increase instead of consuming more and the decrease in government spending will hence be offset by the increased saving from the private sector.

Economic outlook in Australia
Domestic GDP growth was weaker than previously expected over years. This partly can be explained by the weaker consumption growth which can also reflect the slower income growth for households. Through the year ended GDP growth, the real GDP growth is all lower than what previously predicted.

Consumption growth was weaker in most quarters over years, and mainly because of the low spending on services such as the finance and insurances. However, the consumption growth is expected to be recovered and year ended growth is expected to increase gradually around 2.75 percent. Recent declines in housing prices and activities in housing market can also contribute to weigh on consumption growth.

Mining investment declines dramatically in the September quarter, consistent with a decline in spending on liquefied natural gas projects in the future. According to the ABS’s capital expenditure survey and shows that there is future expenditure needed to finalize the projects so that the projects are now increasing the production and exports gradually.

Imports are expected to keep growing in the future, consistent with the ongoing growth in public and private investment. For the exports, it is a little bit lower in 2019, mainly because of the rural exports is lower than what expected. There is a big impact with drought conditions on agriculture production in rural area, especially on cereal crops. However, this weakness can be expected to offset from the manufacturing and services exports, since the depreciation in exchange rate over past few years that can directly increase the international competitiveness in manufacturing products and due to the rising enrolments of overseas students come to Australia.

Labor market outcomes in the December quarter were better than what expected, and labor demand suggest that employment growth will remain above the working age population growth over the next 6 months. Encourage by the strong labor market condition, the unemployment is still expected to decrease to around 4.75 by 2020. As mentioned, the labor market conditions imply the economic activity has been stronger than the GDP data have depicted. Furthermore, the leading indicators suggest that the unemployment would fall faster than forecast, this will lead a less downside risk to the consumption and income growth. Regard to this forecast, as the spare capacity in the labor market declines, wage growth is also expected to growth gradually consistent with the strong labor market.

The December quarter inflation were marginally lower than forecast. The main reason for this result was largely because of the fuel prices that is lower that expected. In the near term, the expected headline inflation has been revised lower relative to the forecast inflation because of the big decline in fuel prices. Farther out, headline inflation is expected to keep growing with the pace of underlying inflation growth due to the tobacco excise increases. Policy development suggests that inflation may remain below average in 2019. It is unclear how the households could respond to the shift in relative non-discretional items.

Over the past three months, the low risks to the global outlook has increased through the ongoing trade tensions that creates uncertainty. In china, this has added considerable uncertainty that has existed on balance the need of support growth and the financial risks. There are also domestic uncertainties for the growth and inflation, and the consumption growth is the key risk when talking about the uncertainty. The recent fluctuations in consumption data and revisions in recent quarters make it harder to measure the underlying momentum in consumption growth. Uncertainties on household disposable income and housing market activities also pose risks on other parts of economy.

Reference:
Reserve bank of Australia, (N/N), ‘Australia inflation target’,Reserve Bank of Australia, retrieved from https://www.rba.gov.au/education/resources/explainers/australias-inflation-target.html

Reserve bank of Australia, (N/N), ‘The transmission of Monetary policy’,Reserve Back of Australia, retrieved from https://www.rba.gov.au/education/resources/explainers/the-transmission-of-monetary-policy.html

Reserve bank of Australia, (N/N), ‘Exchange rate and Australia economy’,Reserve    Bank of Australia, retrieved from https://www.rba.gov.au/education/resources/explainers/exchange-rates-and-the-australian-economy.html

Fabrizio, C. (2013). what is good fiscal policy in Australia, retrieved from http://theconversation.com/what-is-good-fiscal-policy-in-australia-17589

David, W, (N/N). Fiscal Policy, retrieved from https://www.econlib.org/library/Enc/FiscalPolicy.html

Fed Reserve Board, (03, 2018), ‘Monetary principles and practices’, Board of Governors of the Federal Reserve System, retrieved fromhttps://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm

David, G and Amanda, S, (2005), ‘the evolution of fiscal policy in Australia’,Australia Government, The Treasury, retrieved from http://archive.treasury.gov.au/documents/1033/HTML/docshell.asp?URL=TW_2005-04.htm#P77_16109

Blair, C, Stephen, A and Ben, F, (2002), ‘the effectiveness of fiscal policy in Australia’, Australia government, The Treasury, retrieved from https://treasury.gov.au/publication/economic-roundup-winter-2002/the-effectiveness-of-fiscal-policy-in-australia

Federal Register of Legislation, (2014), ‘Charter of Budget honesty Act 1998’,Australia government, Federal Register of Legislation, retrieved from https://www.legislation.gov.au/Details/C2014C00438

Reserve Bank of Australia, (2019), ‘economic outlook’, Reserve bank of Australia, retrieved from https://www.rba.gov.au/publications/smp/2019/feb/economic-outlook.html