Australia Macroeconomic Policy - Assignment Example

It also increases employment due to increased economic activity in producing outputs to meet demand. A combination of increased investment and consumption spending results in increased real GDP, higher prices for goods, and increased employment. However, higher prices may lead to inflation which is undesirable. Therefore, for the RBA to maintain price stability, it adjusts the cash rate accordingly.

2. Initiatives are taken by the Reserve Bank of Australia in recent years in response to the GFC, with particular reference to those impacting the property industries
The GFC resulted in the collapse of the property market as property prices fell dramatically due to massive defaults and rising available properties in the market. This dampened investment and consumption spending in the property market as people became speculative and others avoided purchasing properties (Sergi, Bruno, and Hsing, 2010; De Garis, 2009).

A key dominant determinant of actual demand in the markets is interest changes which are mainly controlled by the Federal Bank. RBA mainly responded to this decline in demand and prices in the economy by lowering interest rates in order to make borrowing affordable and hence induce aggregate. The transmission can be noted in Figure 4 below.

In figure 5 below, prior to the GFC, RBA focused on tightening monetary policy which increased the cash rate from 0.35% in 1998 to 7.25% in 2008 in order to reduce rising inflation rates. (Reserve Bank of Australia, 2012). However, with the impact of the GFC from mid-2008, consumer spending and output growth dropped which significantly reduced property prices. RBA responded by focusing on stimulating aggregate demand which would raise price levels. In doing this, the RBA lowered the cash rate from 7.25% in mid-2008 to 3.50% in September 2012 (Reserve Bank of Australia, 2012a).

3. Evaluation of these actions in terms of their success at the time and identify any subsequent or future implications of these initiatives to property
The Property Council of Australia (2011) notes that values in retail, industrial, and office markets in the property industry were on a steady rise over the 2010 and 2011 period mainly due to continually falling funding costs. Where RBA lowered the cash rate from 4.25% in February to 3.5% in September 2012, a 0.75% decline, housing credit (property lending) rose by 4.9% over the same period (Reserve Bank of Australia, 2012a).

However, while RBA’s actions have stimulated a gradual rise in lending the impact on the property market has been negligible. For Example in Queensland, 44% of all advertised property for sale since January 2012 was from distressed properties (Ferris Focus, 2012). RBA's actions mainly boosted the demand side of the property market to recover. However, the supply side of property markets has however remained sluggish, as property development has halted due to high stock of properties still not bought or rented out due to the crisis (Reserve Bank of Australia, 2012b).
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