Question

Assignment Description Using the principles of economics covered in learning materials from week 1 to week 10 inclusive, students should apply their understanding to analyse the macroeconomic issues and the policy responses. Students are expected to conduct some basic research and to reference journal articles, professional websites and other sources in the process. In doing this assignment you are required to use at least 4 academic sources and apply proper APA referencing style. Impact of COVID 19 on the Australian economy (RBA) The outlook for the Australian and global economies is being driven by the COVID-19 pandemic. The necessary social distancing restrictions and other containment measures that have been in place to control the virus have resulted in a significant contraction in economic activity, but economic conditions will improve as the pandemic is brought under control and containment measures are relaxed. Global GDP is expected to fall sharply in the first half of 2020. The declines in the March quarter were driven by a contraction in Chinese and euro area activity as well as the rollout of containment measures elsewhere late in the quarter. A further fall in global GDP is expected in the June quarter, with many countries expected to record quarterly declines in GDP. The Australian economy is expected to record a contraction in GDP of around 10 per cent over the first half of 2020; total hours worked are expected to decline by around 20 per cent and the unemployment rate is forecast to rise to around 10 per cent in the June quarter. Inflation is expected to be negative in the June quarter largely as a result of lower fuel prices and free child care. (Source RBA) ABS data show that employed people were 13013000 in March 2020, and 12418700 in April 2020 respectively; unemployed people were 718800 in March 2020 and 823300 in April 2020. The participation rate was 66.0% in March 2020 and 63.5% in April 2020. Fiscal Policy Responses Over the past month, the Federal Government has announced an unprecedented fiscal injection of $194 billion (almost 10 per cent of GDP) consisting of $39 billion directly to business, $25 billion to households and the $130 billion Job-Keeper payment to support business and households through the COVID-19 shutdown. Monetary Policy responses The Reserve Bank of Australia has reduced the cash rate to 0.25% Possible Outcome A

4. Assuming the marginal propensity to consume is 0.8, calculate the multiplier effect of the fiscal policy response package of $194 billion.

Do you think the realised policy effect will be as big as that you calculated in the previous task? Elaborate your answers.

6. Could a supply side policy be a better alternative in the long-run? Discuss.

Answer 1

4. Multiplier = 1÷ (1-MPC)

Multiplier effect, Y= (1÷ 0.2)*194 = 970

I didn't find which previous policy the question is asking to compare with.

6. Since people have lost their jobs, inflation has been negative, and complete lock down . These situation shows that there is lack of supply stimulus as well. Government should boost supply by different policies, due to which people will get jobs, which increases the income of people and hence will increase the demand of people. This increase in demand due to supply stimulus may achieve better growth in long run.