The policy mix   Strong & sustainable growth   Low inflation  Full employment  External stability   Equity in disribution of income   Living standards

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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Policy mix:  full employment

As with strong and sustainable economic growth, all policies have combined to achieve a long term improvement in employment, reductions in unemployment and achievement of the government’s full employment goal.  Monetary policy has (and will) focus on reducing unemployment in the shorter term if low inflation is achieved, but it primarily focuses on reducing unemployment over the longer term via the achievement of low inflation.  At a macroeconomic level, budgetary policy is sometimes used stimulate economic growth during economic downturns.  For example, the downturn experienced in Australia during 2008 resulted in large stimulus programs including cash bonuses and tax reductions in order to contain cyclical unemployment.

However, given monetary policy’s relatively ‘blunt’ nature, and the strength of budgetary policy to have a more microeconomic focus, lower interest rates have been supported by budgetary policy supply side initiatives that seek to increase productive capacity and employment in the long run.  A further strength of budgetary policy is its ability to target particular types of unemployment, such as structural or hard-core unemployment, something that cannot be achieved by monetary policy.  In addition, the continued implementation of AS side policies, such as the continued roll-out of the NBN, also remain a key component of the policy mix that is also designed to maintain jobs growth and reduce unemployment over the longer term.  But most AS policies are unsuited to achieving reductions in unemployment in the short term. On the contrary, AS policies will often create job losses in the short term which then requires supporting budgetary or monetary policies.

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