Australian governments over precedent decades have conventionally aimed towards including triangular objectives of financial growth, domestic poise, and external poise within framework of single economy. (DORNBUSCH, Rudiger, 2006) Collectively, these trio set of objectives aim towards sustaining nationalized financial growth while retaining inferior inflation as well as limiting the mass of overseas debts and liabilities. Several researches conducted in concerned field have revealed that there is no consistency in level of economic growth though; it is influenced greatly by fluctuations of international business cycle. (DORNBUSCH, Rudiger, 2006) A governmental macroeconomic management is referred as an attempt to minimize the impact of international business fluctuations by controlling demand to facilitate sustained growth together with inferior inflation and unemployment.

In the last decade macroeconomics policy in Australia has been directed at controlling inflation as it would be associated with macroeconomic stability and growth.

Following on from the GFC’s the government’s main emphasis of macroeconomic policy has been trying to avoid a recession.

Contrast these two phases of policy. Explain how macroeconomic policy objectives, targets and instruments have differed.

Explain how macroeconomic policy objectives, targets and instruments have differed.

Outline the experiences of the Australian Economy over the last 10-15 years making use of macroeconomic aggregates – these may be presented in summaries of tables and/or graphs. Stress should be placed on the challenges facing policy makers at present and likely challenges.

Before the global economic crisis (GFC), the Australian economy has seen significant growth in terms of GDP ignoring various crises that have affected the global economy such as the Asian financial crises (1997-1998) and the United States (US) ‘dot com’ bust (2000) (reference). Throughout this time, Australian macroeconomic policy (MP) has primarily been directed at controlling inflation to maintain stability and growth. MP refers to the structure, performance, behaviour and decision making of a whole economy. (Reference) states that MP is associated with the study of aggregates such as gross domestic product (GDP), price indices and unemployment rates to examine how the economy functions.

Macroeconomic Policy

The continuance of a steady economic environment in Australia post GFC has proven to be a difficult task, with the surfacing of undesired inflation and external account pressures (Treasury, 2008). According to Treasury (2008) acts of policy to tackle such pressures has consistently contributed to short-term downturns and, unavoidably, constrained the prolonging of economic growth. The basis of the issue, however, is the policy failure which permitted the pressures to appear. Nevertheless, the resulting changes in the economic outlook would affect the self-assurance of businesses and consumers and their readiness to engage in the process of structural change. Moreover, disparity in fiscal policy and hesitation about inflation predictions has lead to higher real interest rates, discouraging investment and distorting investment patterns.

In the last few years substantial progress has been made in addressing inflation and to a lesser extent current account deficit constraints (RBA, 2009). The current cycle has been characterised by low inflation, with monetary policy being carried out on a more strategic basis with the desire to keep principal inflation consistent with the Reserve Bank of Australia’s (RBA) average target range of 2 to 3 per cent over a yearly cycle.

Last year the Government introduced a new framework for the conduct of policy, clearly recognising the Reserve Bank’s role and endorsing its inflation objective. The clarification of policy responsibilities, and recognition of their observance in practice over time, together with an accumulating record of low inflation, is likely to have a continuing positive impact on lowering inflation expectations and creating confidence in a sound investment environment.

Australia’s large structural current account deficit reflects both inadequate national saving and inadequate investment returns overall (ABA, 2009). On the saving side, the principal cause is a deficiency in public saving especially at the Commonwealth level. The Government through its fiscal consolidation program is addressing this problem and has put in place a policy framework that will maintain the adequacy of the Commonwealth contribution to public saving. Statements 1 and 2 spell out in detail the fiscal strategy, including improved transparency and accountability practices, and implementation of the strategy in the years ahead. The benefit of a more soundly based fiscal policy is likely to be seen over time in the capacity of the economy to sustain faster rates of growth than would otherwise be the case. While it is too early to be able to point to any concrete results with confidence, the 1997-98 economic outlook presented in Statement 2 suggests that higher saving in prospect next financial year will help to constrain the current account deficit.

Before the global economic crisis of 2007 the Australian economy sustained increased economic growth of approximately 8% per annum – except for the year 1997-1998 (Asian financial crisis) (The Australian Year Book 2008). This resilience reflects on well-timed monetary and fiscal policy responses; strong demand from various major trading partners, such as China; increased population growth that aided demand in the domestic economy; and the robustness of the financial sector (The Australian Year Book 2008). More generally, Australia’s strong economic performance can be commended by decades of economic reform – in economic policy, regulatory frameworks and governance. These have increased the flexibility of the economy, and strengthened its ability to withstand unforeseen circumstances.