Could anyone please give me some feedback on where to improve, I'm struggling with the BP and MP policy mix question::
The goal for a sustainable rate of economic growth is to achieve the highest rate of economic growth possible that is high enough to reduce rates of unemployment and yet not so high as to create the economic problems of price and external instability, negative externalities and resource depletion.
Following the onset of the global financial crisis, and its negative impact on Australian rates of economic growth and unemployment by late 2008, both monetary and budgetary policies moved from contractionary to expansionary stances in 2009, with the focus of sustaining economic growth and employment and away from a concern about capacity constraints and inflation.
The RBA quickly cut the cash rate from 7.25% to 3% by April 2009, an expansionary stance to stimulate consumption and investment, as well as aggregate demand in the economy without reaching a technical recession. After GDP growth favourably rose by 2010, the RBA acted to increase the cash rate amid concerns about the re-emergence of capacity constraints and inflationary pressures. As a result, monetary policy was tightened seven times between October 2009 and November 2010 (from 3.00% to 4.75%) amid and since then, the cash rate still remains at the relatively restrictive stance of 4.75%.
Due to the global crisis, the very expansionary 2009/2010 and 2010/2011 budgets were of an underlying cash deficit of around $50 billion, largely due to automatic and discretionary stabilisers as well as the government implementing initiatives that were purely designed to stimulate growth (or stabilise the economy). These involved both demand and supply measures that helped to lift economic growth to relatively high levels. For example, the budgets included numerous taxation initiatives designed to stimulate consumption and investment, in addition to several spending measures designed to lift aggregate demand and aggregate supply (e.g. the increase in G2 infrastructure spending in the form of the Building Education Revolution or school buildings program). Since then, the government has adopted a relatively contractionary budgetary policy stance in the 2011/2012 budget despite the negative impact the natural disasters of 2011 has on the economy. This is as the cyclical and structural components of the budget combine to reduce the estimated deficit from $49.4B in 2010/2011 to $22.6B in 2011/2012 due to signs of a strong recovery earlier than expected. The anticipated increase in economic growth (to 4% in 2011/2012) will automatically result in more tax revenue and less government expenditure. Additionally, the withdrawal of the fiscal stimulus measures in earlier budgets and the government’s commitment to fiscal consolidation (returning the budget to surplus by 2012/2013 via spending restraints) is further helping to reduce the size of the deficit over the period.
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