Essay ECON1010 – Macroeconomics 1 – Fiscal Policy – Economics Assignment Help

Assignment Task

 

Task 1
Writing material for your Policy Brief
Now that you have developed an understanding of the policy tools that are available to address economic challenges, your task is to prepare material that will go towards a Policy Brief on Australia’s recovery from the COVID-19 pandemic-induced recession.
Imagine you are now employed as a Graduate Economist working for the Australian Treasury. As part of the Federal Budget, your team is responsible for putting together a Policy Brief for the department that summarises some key aspects of the government’s policy responses to the COVID-19 recession, and provides policy analysis to lead the Australian economy back to recovery. You have a very important job!
Your task is to provide clear answers to the following queries that have been requested from your department manager, using the knowledge and skills that you have gained from your macroeconomics course.

1) Fiscal policy
The Australian Government implemented an unprecedented package of fiscal policy measures to manage the economic impacts of the COVID-19 pandemic and support the economy through the pandemic-induced recession.
In his 2021 Budget speech, the Australian Treasurer Josh Frydenberg announced that the Australian Government had injected $291 billion in direct economic support to assist businesses and jobs.
The Treasurer announced that the Australian economy is forecast to grow by 5.25% in 2021, and that unemployment is expected to fall to a rate of 5% by late 2022.
(See the Treasurer’s Media Release below)

Your Policy Brief will provide some background information on the role of fiscal policy in the economy. Provide a short explanation of the 3 levers of fiscal policy that the government can use to manage the economy, and explain what is meant by the ‘fiscal multiplier effect’. (2-3 sentences)
The Australian Bureau of Statistics (ABS) reports that the housing saving ratio in Australia increased notably during the pandemic. The following chart and table from the ABS illustrates how the fraction of income that households are allocate to saving jumped during the pandemic and has remained above pre-pandemic ratio.
Explain how this higher saving ratio would affect the size of the multiplier. In other words, would a higher saving rate strengthen or weaken the multiplier effect, and why? 
Saving ratio of Australian households (Quarterly data from Dec 2018 to Dec 2020)
Quarter Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20
Saving ratio (%) 4.0 4.4 3.6 6.1 5.3 7.9 22.0 18.7 12.0
Source: ABS, Australian National Accounts: National Income, Expenditure and Product. https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release. (Accessed 9 May 2021)
Your next task for the Policy Brief is to compute the numerical value of the fiscal multiplier in current economic conditions.
To calculate the value of the multiplier, you have information showing that Australians pay an average rate of 24% in income tax, and that Australians spend about 16% of their income on imports.
To figure out the other information that you will need to calculate the value of the multiplier, you should use the ABS data from part (b) the previous question on the household saving ratio. You should use the data for the most recent quarter available in this ABS data.
When you compute your calculation, your manager has asked you to provide the formula for the fiscal multiplier and provide the full steps of your working, to show how you arrived at your answer. Round off your final answer to 2 decimal points.
When you present your answer, write a clear sentence explaining how to interpret this final number.
Now that you have computed the value of the multiplier, calculate your forecast of the overall impact of the government’s $291 billion stimulus package once the full effects are circulated throughout the economy. We can treat this stimulus package as an increase in government spending.
You can use the value of multiplier rounded off to 2 decimal places, and present your final answer also rounded off to 2 decimal places.
Be sure to show all your working because this will be needed in the Policy Brief.
When you present your answer, write a clear sentence explaining how to interpret this final number.
The Federal Budget has estimated that the Australian Government will run a budget deficit of $161.0 billion in 2020-21, and accumulate a net debt which will peak at $980.6 billion by 2025. This net debt figure is the equivalent to 40.9% of GDP (Source: Australian Treasury, Budget 2021-22, Budget Paper Number 1)
Your team of economists is anticipating there is going to be concern in the general public about the growing size of the government debt. This concern needs to be addressed in the Policy Brief.
In your contribution to the Policy Brief, you have been asked to write a simple explanation of what is meant by a ‘budget deficit’ and what causes a government’s budget deficit to rise? You should make reference to the formula for the government’s budget balance that we learnt in class (2 sentences)
Following on from your discussion in part (e), explain why a government accumulates debt? Should Australia be worried about running a large budget deficit and accumulating such a large debt in current economic conditions? Provide reasons to support you answer why or why not. (2-3 sentences)
In writing your Policy Brief, you have gained information from researchers from the University of Canberra who have calculated the changes in the Gini Index for Australia between March and June 2020.
Their modelling estimates that the Gini Index would have risen in Australia if it had not been for the fiscal policy support that the government implemented during the pandemic.
How do you interpret a rise in the Gini Index? If the Gini Index increases, should policymakers be concerned or relieved, and why? (2 sentences)

2) Monetary policy
The Treasury is paying close attention to the policy responses that Australia’s central bank, the Reserve Bank of Australia (RBA), is taking to help mitigate the economic fallout of the COVID-19 pandemic.
For the Policy Brief, you have been asked to write some background information on the role of monetary policy in managing the economy.
Explain what is meant by the terms ‘contractionary monetary policy’ and ‘expansionary monetary policy’? As part of your explanation, explain in what circumstances would a central bank implement contractionary monetary policy and in what circumstances would it implement expansionary monetary policy? In your answer, consider the macroeconomic objectives that a central bank is responsible for in its charter. (3-4 sentences)
Based on the announcement that the RBA Governor made in November 2020 (see the RBA statement), what type of monetary policy did the RBA implement in that month? What action would the RBA have needed to take to achieve this change in the cash rate, in terms of Open Market Operations and changing the money supply? (2 sentences)