Report Writing The expansionary policies implemented in Aust

Report Writing:
\"The expansionary policies implemented in Australia in 2008/9 by the Rudd Government and the Reserve Bank of Australia were unnecessary and will result in a period of unwanted inflation\".

Write a report on the above theme, evaluating whether the above prediction turned out to be true. Use your understanding of Fiscal and Monetary policies studied in this subject to analyse the relevant factors and to come to a conclusion. You are free to critically analyse the statement and provide facts and figures to support your position. Your conclusion should be made in line with your analysis/discussion and the arguments made in the body of your report.

Solution

Expansionary policy seeks to accelerate economic growth. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. This is done by increasing the money supply available in the economy. Expansionary policy attempts to promote aggregate demand growth. By increasing the amount of money in the economy, the central bank encourages private consumption. Increasing the money supply also decreases the interest rate, which encourages lending and investment. The increase in consumption and investment leads to a higher aggregate demand. If consumers and firms believe that policymakers are committed to growing the economy, the agents will anticipate future prices to be higher than they would be otherwise. The private agents will then adjust their long-term plans accordingly, such as by taking out loans to invest in their business. But if the agents believe that the central bank\'s actions are short-term, they will not alter their actions and the effect of the expansionary policy will be minimized.

As Australia avoided a technical recession after experiencing only one quarter of negative growth in the fourth quarter of 2008, with GDP returning to positive in the first quarter of 2009 the expansionary monetary policy was much useful for generating unemployment to increase the growth rate because only after a small period of time the inflation rate began to outway the growth rate.

If the case was more severe like USA or UK, then probably this expansionary monetary policy would have worked much better.