The paper “ Macroeconomic Policy, inflation, Unemployment, and Growth” is an outstanding example of the literature review on macro & microeconomics. Inflation refers to a general increase in prices. An increase in prices leads to a reduction in the purchasing power of the currency. To control inflation, monetary and fiscal policies are needed to achieve macroeconomic objectives and stability. According to Haslag and Hein (1992), monetary policies are employed to control inflation and interest rates while fiscal policies are used to improve the aggregate output of the economy. Combining both tools appropriately creates economic stability.
For close to a decade, the Australian government has used these tools to control the rate of inflation which in turn would help attain economic stability while at the same time avoiding the recession. This paper will analyze the economic experience of Australia in the last decade while highlighting the challenges policymakers had to endure. It will also look at instruments and targets in macroeconomic policies. Macroeconomic policies will be discussed using various economic theories in relation to Australia’ s economy. Experience of the Australian economy over the last 10-15 years, in relation to major macroeconomic aggregatesAccording to Love and Payne (2008), economic stability entails; low unemployment or full employment, price stability, economic growth, and external balance.
Over the past decade, Australia has tried to achieve the above by mainly controlling their inflation which in turn controls unemployment and promotes economic growth. EmploymentThe unemployment rate shows a comparison between those that are employed and those that are not. Over a decade before the global recession, employment in Australia grew every year by about 2.3%. The availability of full-time employment grew by 1.9% and that of part-time by 3.5%.
After the recession in September 2008, growth in employment stalled and unemployment rose to 5.9% in 2009. In the following years, the economy saw great improvements with employment growing by about 3.3% in 2010 and unemployment falling to 4.9%, and the participation rate is recorded at 65.8%. In March 2012 unemployment had settled at 5.2%. This has been according to the Australia bureau of statistics.
Allen, W. & Wood, G. 2006, ‘Defining and achieving financial stability’, Journal of Financial Stability Vol.2, No.2, pp 152–172.
Gertler, M. & Karadi, P. 2011, ‘A model of unconventional monetary policy’, Journal of Monetary Economics, Vol.58, No.1, pp 17–34.
Gordon, C. & Valentine, T. 2009, ‘Economics in Focus: The Global Financial Crisis, Pearson Education, NSW.
Haslag, J. & Hein, S 1992, ‘Macroeconomic Activity and Monetary Policy Actions: Some Preliminary Evidence’, Journal of Money, Credit & Banking, Vol 24, No.4, pp 431-446.
Hubbard, G., Garnett, A., Lewis, P. & O’Brien, A. 2010, ‘Essentials of Economics’, Pearson Education, NSW.
Huizinga, H. 2002, ‘A European VAT on financial services? Economic Policy, Vol, 7, No. 35, pp 498–534.
Love, R., & Payne, R 2008, ‘Macroeconomic News, Order Flows, and Exchange Rates’, Journal of Financial & Quantitative Analysis, Vol 43, No.2, pp 467-488.
Otto, G 2007, ‘Central Bank Operating Procedures: How the RBA Achieves Its Target for the Cash Rate’, Australian Economic Review, Vol. 40, No. 2, pp 216-224.
Sullivan, M. & Steven, M 2003, ‘Economics: Principles in action’, New Jersey: Pearson Prentice Hall.
Thompson, G., Murray, T. & Jomini, P. 2007, ‘Trade, Employment and Structural Change: The Australian Experience’, Pearson Educational, NSW