Impact of Macroeconomic Policy on Economic Growth

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Analyse the impact of macroeconomic policy on economic growth in Australia since 2008. In your response you should refer to the economic information provided.

"It was always easy to predict that fiscal policy would come back into fashion just as soon as the economy dipped into recession. The politician who could resist the temptation to use the budget to stimulate the economy during recession has yet to be born.

But there were two other, more economic arguments favouring greater reliance on fiscal policy which arose from the particular nature of the global financial crisis. First, the synchronized nature of the global recession - because all developed economies were hit at the same time by the same developments in global capital markets - gave fiscal policy a comparative advantage. Ross Gittins, University of Sydney, March 18, 2010."

Macroeconomic policy has had a significant impact on the level of economic growth since 2008, having a significant influence during the Global Financial Crisis of 2008 and the immediate post-GFC period and the subsequent Mining Boom. The macroeconomic policy choices have had implications for the level of GDP growth, which can be drawn out and related.

Macroeconomic policies are the policies that influence the entire economy, such as fiscal (use of the government budget) and monetary policy (setting of the cash rate). These are seen to impact on the level of Aggregate Demand in an economy, and through AD the level of economic growth. It is John Maynard-Keynes classic theory that economic growth is driven by the aggregate demand in an economy. Economic growth is measured in an economy by the change in Gross Domestic Product (GDP). AD=C+I+G+(X-M)

graph showing the movements of the AD curve

Global Financial Crisis

The Global Financial Crisis that occurred during 2008 was the single most significant shock to the Australian economy since the depression. Ross Gittins incorrectly notes that the “economy dipped into...
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