Fiscal vs Monetary

Essay by Penn June 2004

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Discuss the role of fiscal and monetary policy in Australia and assess their effectiveness in achieving the government's current eco objectives.

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Monetary and fiscal policy the key macroeconomic policies, allow the Australian government to manipulate aggregate demand in order to achieve their economic objectives. Macroeconomic policies attempt to smooth fluctuations in the business cycle in the short to medium term by influencing the level of aggregate demand, as seen in the diagram. Monetary policy is...... Fiscal policy is....These policies in conjunction with microreforms have been effectively employed to fulfill the government's objectives of: economic growth, internal stability and external balance.

The government, however must prioritise between these goals as it is difficult to achieve them simultaneously. Eco growth is .... Internal and external balance is.....By using monetary policy to control inflation and fiscal policy to ensure external viability, the current government hopes to sustainable level of growth in the short to medium term.

Eco growth increases the standard of living as well as indirectly reducing unemployment. Both macro policies ensure international confidence in the economy, necessary for stabilising the Australian dollar and external balance. The government also aims for an equitable distribution of income and environmental preservation, however currently these are sacrificed for the benefits of increased economic activity.