Economic Objectives Of Government Essay

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The economic objectives of government are the attainment of sustainable economic growth (assumed to be around 3-4%), price stability, full employment, ecologically sustainable development, income equality and external stability. The two main macroeconomic policies used by government are the fiscal policy and monetary policy. Fiscal policy refers to the government’s manipulation of the two variables, taxation and government spending to alter the level of aggregate demand in the economy. If the government wants to encourage growth, they can run a budget deficit where spending exceeds revenue. This increases the level of aggregate demand in the economy and therefore the level of growth. If growth is becoming unsustainable with inflationary pressures…show more content…
The RBA alters growth through market operations, which affect the cost of credit, which in turn alters demand levels in the economy. In aiming to achieve an average growth rate of between 3 and 4 percent per annum, the RBA continually alters the cash rate to affect growth levels to achieve objectives. The RBA targets an inflation rate of between 2 and 3 percent, and this provides an anchor point for inflationary expectations and provides the RBA with more credibility when this target is achieved. Typically, inflation sets in at the top of the business cycle and the RBA seeks to lower demand just before inflation arises. When demand pull inflation occurs, the RBA can immediately tighten monetary policy which will increase the cost of credit and decrease the demand for goods and services, placing less pressure on the general level of prices to increase. Sustainable economic growth ensures higher living standards for individuals in the economy and comes closer to solving the economic problem. The Federal Government has set a target of growth of between 3 and 4 percent while the RBA targets at least the long term average of 3%. In the past, macroeconomic policies to achieve growth can be said to have been reasonably effective as Australia was the only OECD country to have achieved growth of over 3% over the time period 1990 to
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