The Australian Government Implemented An Unprecedented Package Of Fiscal Policy: Macroeconomics Assignment, USA, Australia

University UniSA
Subject Macroeconomics

Task

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 $291billion indirect 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.

a) 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’.

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b)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 ABSillustrates how the fraction of income that households are allocated to saving jumped during the pandemic and has remained above the 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?

(See ABS table below)

The saving ratio of Australian households (Quarterly data from Dec 2018 to Dec 2020)

QuarterDec-18Mar-19Jun-19Sep-19Dec-19Mar-20Jun-20Sep-20Dec-20
Saving ratio (%)4.04.43.66.15.37.922.018.712.0

Source: ABS, Australian National Accounts: National Income, Expenditure and Product.

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