Essay on Role of Government in Mixed Economies Such as Australia
What role do governments have in modern mixed economies such as Australia? Using appropriate indicators (macro economic aggregates) outline the present state of the economy. In what ways is the Commonwealth government using fiscal and monetary policies to influence the Australian economy? What are the main features of the government's micro economic policy? Why is the government concerned about microeconomic reform?
The role of government in Australia today has less influence on the market than they did a decade ago. It function now is to provide a stable internal and external balance under which the market can function. This is achieved through the use of fiscal, …show more content…
Due to the multiplier effect, a reduction in government spending will impact the level of economic activity. The recent cut in government spending has dampened aggregate demand. This in turn produced low levels of inflation and economic growth. By reducing the amount of government participation in the market, it hopes to achieve the 'crowding in' effect. This means that the private sector will invest in functions that the government once provided (CES facilities). Monetary policy is the raising or lowering of interest rates to dampen or stimulate the economy. It is concerned with internal balance (ie. economic activity, employment and price stability). Unlike fiscal policy, monetary policies influence the economy indirectly through changes in financial conditions. This follows the belief that the level of financial activity plays a major role in determining the level of economic activity. The main indicator of monetary policy stance is the level of short-term interest rates.
The government is currently using monetary policy to boost the level of economic activity. By easing interest rates the private sector will be more inclined to borrow money for investment. Small businesses will expand and this should lead to an increase in employment opportunities and a decreasing unemployment rate. A fall in interest rates will also