Question

Australia's Sticky Unemployment Rate Underscores Reserve Bank of Australia (RBA)'s Monetary Policy Challenge Australia’s jobless rate held above 5% in May despite a surge in hiring, underscoring the Reserve Bank’s challenge to drive down unemployment and stoke inflation. RBA Governor Philip Lowe has made clear that easing monetary policy is not the ideal path to boosting hiring and investment, and has urged the government to undertake structural reforms. The government is trying to pass tax cuts that is estimated could stimulate the economy. While the economy added 42,300 roles last month, new entrants were absorbed by a jobs market that swelled to a record, the statistics bureau said in Sydney Thursday. That left the jobless rate at 5.2%, which is well above the 4.5% level the RBA estimates is needed to revive price pressures. The result was further diminished by most jobs being part-time and fewer hours worked, suggesting a less robust labour market and likely explaining the currency rate decreasing. RBA Governor Philip Lowe resumed cutting interest rates last week after a three-year hiatus as he bids to spur hiring and return inflation to target. Australia’s labour market has shown surprising resilience as hiring persisted despite weakness across much of the economy. One explanation is that much of the hiring is coming from government-related programs that are unrelated to prevailing economic conditions. For much of the past year, Australia’s debt-laden households have cut spending as they grapple with stagnant wages and watch falling house prices erode their wealth. Consumption accounts for almost 60% of GDP and weaker spending has slowed economic growth.

After reading this article :

Describe the measures undertaken by the Reserve Bank of Australia in combating inflation while maintaining low unemployment. Discuss whether they have been successful.

Answer 1

RBA has promoted and encouraged government to establish an expansionary fiscal policy by cutting taxes and inducing higher spending and subsequently has also adopted expansionary monetary policy by cutting interest rates.

This keeps enough money supply for corporate borrowing and hence hirings kickin and unemployment reduces and keeps inflation within target range and promoting robustness in economic growth to combat deflation and unemployment.

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