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Economic Growth Policies

Macroeconomic Policies
Monetary Policy both are macroeconomic policies.
Fiscal Policy
Macroeconomic policies affect the aggregate demand of the economy
Aggregate demand is the total amount of spending in the economy
AD = C+I+G+(X-M)
Microeconomic policies
Protectionist policies
-tax on goods and services
-use of resources
-more efficient production
Microeconomic policies affect the supply of the economy total amount of
income that occurs in the economy
AS = Y = C + S + T
I+G+(X-M) = C+S+T
T+G+X=M+S+T circular flow of income
1. Describe how macroeconomic policies can be used to promote economic
2. Explain the various ways that AS can be increased
3. What factors might influence the type of policy used
4. What would you do to stimulate growth if you were PM. Why?
1. Fiscal policy operates through changes in the level and composition of government
spending, the level and types of taxes levied and the level and form of government
borrowing. Governments can directly influence economic activity through recurrent and
capital expenditure, and indirectly, through the effects of spending, taxes and transfers
on private consumption, investment and net exports.

Aggregate supply represents the total level of income in the economy.
Improvements in AS are important for an economy as it will not only increase
the levels of real GDP, it will also reduce upward pressure on prices and make
Australia more internationally competitive.
Microeconomic reforms should be used to improve the efficiency of the economy
and this can lead to structural change. However, an increase in the factors of
production available will also increase the level of aggregate supply in the
economy. Workers gaining new skills, new technology and improvements in

transportation access will all increase aggregate supply and therefore the total
income in the economy.
3. The type of policy used depends on whether the government needs to increase
AD or AS. In recent years there has been increase focus to expand AS as Aus. Has
reached capacity constraints that is, growth has been held back by the
economys productive resources being almost fully utilized skill shortages and
infrastructure bottlenecks encouraged to employ microeconomic policies to
increase productivity growth and expand aggregate supply. Using demand side
policies are much for instant, - long term demand increase will also increase
price levels increasing inflation levels.
Long term the government will try to increase aggregate supply, lower costs in
the economy, the price levels will start to go down. Harder to implement e.g
Gonski report to improve education
4. If I was the government I would use monetary policy because that way it will
be a direct and immediate affect on economic growth rather than a longer-term
effect of fiscal policy, - time lags. Furthermore, employing fiscal policy (cuts to
the budget) will decrease injections into the economy and ultimately hinder
economic growth. Spending to much will also hinder economic growth, as deficit
reached. Taking advantage of the multiplying effect- using fiscal policy.
Cash rate is 2.5% - lowest level in 30 years. hesitant to drop the cash rate, only
increase exchange rate.
Budget deficit is a problem for fiscal policies
Microeconomic policies more efficient use of resources
Economic growth is decreasing in Australia, therefore, decrease interest rates
and subsidise production.