Australian Government Macroeconomic

The Australian Government have macroeconomic objectives, full employment, price stability, external balance and economic growth. To for full these objectives the government use 2 main policies, a Fiscal policy which deals with the commonwealth's plans and actions to influence economic active though taxation and Government spending. The second policy is the Monetary policy. Its purpose is to increase or decrease aggregate demand (AD) depending on the economic activity and to manage inflation.

It is helpful to think of the Fiscal policy has the governments budget policy because it consists everything the government will spend its money on for the next 12 month. The government will spend its money on things like defence, environmental programs and Medicare. It also talk about how the governments taxation system. There are 2 types of Fiscal policy. The Contractionary Fiscal Policy which is dub as the surplus policy. This is where a government will plan to spend less money than what it receives through taxation. This will help to increase government saving and decrease consumption and investment spend through higher taxes. With the money saved up by the government the government can use it to invest it into a large firm which otherwise would have to find funding from overseas investors, also to pay back Australia overseas debt which decrease the current account deficit effecting external balance. This will in turn decrease the AD curve. When the AD curve is decreased it will bring the price of goods and services down because firms will want to sell their products which less people want to buy because of the effect of the Fiscal policy. The other type is the Expansionary Fiscal Policy, which has the opposite effect on the AD curve as the Contractionary Fiscal Policy. In this the government will want to spent more money than it receives though taxes or decreasing the taxes of for consumers so they have more money to buy good and services. This may lead the government into a deficit but it will create more jobs and have a positive effect on full employment. With the government investing more money into the economy this will increase the AD curve rising inflation but increasing economic growth.

Monetary policy's main purpose is to affect the aggregate demand and to manage inflation levels. When there is a high level of economic activity and a risk of dangerous levels of inflation the monetary policy is needed to be tightened