Macro Economics Monetary Policy

Question: Discuss about theMacro Economicsfor Monetary Policy. Answer: Introduction The government of any nation has two significant tools in their hands to control the economy from diverging away from their path into an anarchic situation. The tools are fiscal policy and monetary policy. The government has direct control over the fiscal policy but has supervising power over the monetary policy, which is directly under the control of the central bank of the nation. This essay focuses on the article on the MYEFO released by the Australian government and published in an established daily. It tries to understand the factors that have caused the deterioration of the nations budget deficit and then focuses on the recent economic scenario of the nation by reviewing the performance of the nation through its macroeconomic indicators. The MYEFO report has been published in December 2015 by the Australian government. It highlights that there has been an adverse influence of the existing budget deficit on the future cash balance of the economy. The present deteriorating condition of the Australian economy is the consequence of the measures taken up by the former Australian government in favor of investment. It has been seen that the government has taken infrastructural programs like investment in land transport. It has also taken up measures that abrogated the carbon tax. One major reason that can be highlighted to create this severe deterioration of the economy is the $8.8 billion grant paid by the government in favor of the Australian Reserve Bank. The government has also focused in removing the uncertainty in the economy by investing $2.9 billion, which also took part in the increase in the budget deficit. In addition, it can be commented that the government has taken up less amount of savings policy and more of supplementary expenditure. The single grant of $8.8 billion given in the mentioned financial year is amongst the exigent and hefty payment made by the government within a span of four years. This hefty payment made by the government in coalition aroused the question if at all it was a new cost borne by them or an remuneration of the capital given to the Australian Reserve Bank. In the views of the opposition, this was an unplanned, hasty step taken by Australian government. According to their views, this decision can make the Reserve bank lose their faces and trust in front of the public and speculation regarding the power of the Central Bank and the existing market could be generated. It has also been observed that in views of the government it was a new expenditure incurred by them given in the form of grant to the nations central bank. On other hand, it can be stated that the Reserve Bank of Australia (RBA) never officially asked for any such grants. In views of Ballantyne, De Voss and Jacobs (2014), there was no lawful or economic base in injecting the cash within the economy. The possible impact of the cut in government spending is going to be felt in the aggregate demand of the economy by negatively affecting it. The existing economic condition is going to determine the extent of impact felt through the demand cut within the economy. It can be said that aggregate demand is expected to gets reduced due to the decrease in the government spending. As opined by Alensina, Favero and Giavazzi (2015), there is also a possibility of prodigious decrease in the real GDP under this circumstance. It can also be stated that in case of a thriving economy, the result of this reduction in government spending via the component of expenditure is going to significantly dominate the inflationary pressure without causing a significant change in the GDP. According to the MYEFO report, there has been a reduction for deficit as compared with the previous year by the amount of Aus $ 0.6 billion. This reduction is an appeasing sight for the government of Australia overlooking the fact that this might be the cause of low GDP in future. It is also expected that this incident might cause the a big hole in the governments pocket in the form of eloping tax revenue of around Aus $ 5.3 billion which has been showing in the fiscal balance of the economy (De Souza, Dollery Kortt, 2016). The following table might be helpful for understanding the situation: Table 1: Estimated Budget Deficit Source: Created by the Author The table above highlights the received proceedings of the economy through a systematic cash measure format. According to the governments views as published through MYEFO, there is a possibility of worsening of the fiscal balance by the amount of Aus $ 4.4 billion in the present financial year. The forecasting of the MYEFO suggests that in the year 2017-18, the growth rate of GDP faced by Australia is going to be 2.75%. The predicted growth rate fort they year 2016-17 is 3%. This implies that the year in the very next year, the economy is going to face a reduction of 0.25%. The economy is expected to face a huge negative consequences as a result of this downfall in the form of rising unemployment, loss of confidence amongst the people and even communal issues. It has been seen that nearly 1.5 million people belonging in the working age group still depends on the social protection given by the government and the number is likely to increase. The government expects that it might be abl e to revive the scenario and bring the economy to the level where it sees budget surplus by the end of the year 2020-21. The lower level of unplanned private investment led to the worsening of the GDP. Other than that, there was lack of competitiveness within the economy and a loss of Aus 10 billion from the savings side is also a major concern for the economy. Hence, it can be stated that a single mis-calculation of the policy led to the downturn of the entire economy through a series of chain reaction taking place in the different domain of the economy. Reference: Alesina, A., Favero, C. Giavazzi, F., 2015. The output effect of fiscal consolidation plans.Journal of International Economics,96, pp.S19-S42. Ballantyne, A., De Voss, D. Jacobs, D., 2014. Unemployment spare capacity in the labour market.RBA Bulletin, pp.7-20. Cheung, B., Manning, M. Moore, A., 2014. The Effective Supply of Collateral in Australia.RBA Bulletin, pp.53-66. Daley, J., McGannon, C. Hunter, A., 2014. Budget pressures on Australian governments 2014.Grattan Institute, viewed,21. Valle de Souza, S., Dollery, B.E. Kortt, M.A., 2016. A critical evaluation of Australian mineral resources rent tax.International Journal of Public Administration, pp.1-9.