policy responses and their effects in dealing with economic objectives

Question 1

fiscal policy (expansionary) vs. growth

Answer 1

• ↑AD → ↑economic growth

Question 2

fiscal policy (expansionary) vs. price stability

Answer 2

• ↑AD → demand-pull inflation

Question 3

fiscal policy (expansionary) vs. unemployment

Answer 3

• increased growth → increased derived demand for labour → reduced u/e

-govt. spending on jobkeeper → reduced u/e

Question 4

fiscal policy (expansionary) vs. inequality

Answer 4

• increased derived demand for labour provides increased opportunities for low skilled employees getting a job
• progressive tax + welfare spending narrows inequality

Question 5

fiscal policy (expansionary) vs. external stability

Answer 5

• increased govt. debt worsens CAD
• increased demand for imports worsens BOGS (X-M)

Question 6

fiscal policy (expansionary) vs. environmental

Answer 6

• increased AD → increased resource use → worsening environmental sustainability

Question 7

monetary policy (expansionary) vs. growth

Answer 7

increased AD → increased economic growth

Question 7

monetary policy (expansionary) vs. price stability

Answer 7

increased AD → demand-pull inflation

Question 7

monetary policy (expansionary) vs. unemployment

Answer 7

increased derived demand for labour → reduced unemployment

Question 7

monetary policy (expansionary) vs. inequality

Answer 7

• increased derived demand for labour provides opportunities for unemployed individuals to earn wages
• however, worsens wealth inequality as reduced cash rate → increased house prices

Question 8

monetary policy (expansionary) vs. environmental

Answer 8

increased AD → increased resource use → worsening environmental sustainability

Question 8

monetary policy (expansionary) vs. external stability

Answer 8

reduced interest rates → depreciated currency → improves int. competitiveness and thus, BOGS

Question 9

microeconomic policies

Answer 9

increased efficiency → increased AS → economic growth

Question 10

microeconomic policies vs. price stability

Answer 10

increased efficiency → reduced cost-push inflation

Question 10

microeconomic policies vs. inequality

Answer 10

trade liberalisation → increased structural unemployment → worsened inequality

Question 11

microeconomic policies vs. external stability

Answer 11

increased efficiency improves int. comp → improved BOGS

Question 11

microeconomic policies vs. unemployment

Answer 11

trade liberalisation leads to;

• increased structural u/e in the short term
• reduced unemployment in the long term as firms become more efficient

Question 12

labour market decentralisation vs. growth

Answer 12

increased AD → increased growth

Question 13

labour market decentralisation vs. price stability

Answer 13

decentralisation → only some workers/industries get pay raises → reducing cost-push inflation

Question 14

labour market decentralisation vs. unemployment

Answer 14

reduced govt. involvement with wages → reduced regulation and conditions → increased willingness for firms to hire → reduced u/e

Question 15

labour market decentralisation vs. inequality

Answer 15

• high skilled workers are able to negotiate higher wages → widening inequality
• reduced govt. involvement with wages → reduced regulation and conditions → increased willingness for firms to hire low skilled individuals

Question 16

labour market decentralisation vs. external stability

Answer 16

increased efficiency → improved int. competitiveness → improved BOGS

Question 17

environmental policies vs. growth

Answer 17

• reduced AS and growth in short-term
• increased growth in long-term

Question 18

environmental policies vs. price stability

Answer 18

regulations + taxes → cost-push inflation (e.g. 7% price rise from carbon tax)

Question 19

environmental policies vs. unemployment

Answer 19

reduced AS → reduced derived demand for labour → increases structural u/e

Question 20

environmental policies vs. external stability

Answer 20

reduced int. comp due to increased business costs → worsened costs

Question 21

environmental policies vs. environmental sustainability

Answer 21

rules + incentives reduce resource use → improving env. sustainability - however, govt. policies have had a minimal effect on env. sustainability with the recent reduction in emissions largely due to reduced renewable energy costs and the covid-19 pandemic