§-Quick questions
QLDEconomicsUnit 4: Contemporary macroeconomics
Quick questions on Fiscal and monetary policy in Australia (QCE Economics Unit 4)
15short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is fiscal policy?Show answer
Fiscal policy is the use of the Commonwealth Budget revenue and expenditure decisions to influence the macroeconomy.
What is monetary policy?Show answer
Monetary policy is the manipulation of the cost and availability of money and credit by the RBA.
What is the cash rate?Show answer
The cash rate is the overnight inter-bank lending rate. The RBA sets a target and uses open market operations to make banks transact at the target.
What is the policy mix?Show answer
Coordinated fiscal and monetary policy is more effective than either alone:
What is budget outcome?Show answer
The underlying cash balance is the headline measure. Surplus = revenue exceeds expenditure; deficit = expenditure exceeds revenue.
What is mandate?Show answer
Reserve Bank Act 1959: currency stability, full employment, prosperity and welfare. Operationalised since 1993 as 2-3 percent inflation target on average over the medium term.
What is 1. Interest rate channel?Show answer
Cash rate flows through to retail rates. Higher rates raise borrowing costs and reduce consumption and investment.
What is 2. Asset price channel?Show answer
Higher rates lower housing and equity prices. Lower wealth reduces consumption.
What is 3. Exchange rate channel?Show answer
Higher rates attract foreign capital, supporting the AUD. Reduces imported inflation; reduces net exports.
What is 4. Expectations channel?Show answer
RBA decisions and forward guidance influence inflation expectations and wage-setting.
What is strong and sustainable growth?Show answer
Counter-cyclical fiscal and monetary policy; supply-side reform for long-run growth.
What is full employment?Show answer
Counter-cyclical demand management; labour market reform to reduce the NAIRU.
What is low and stable inflation?Show answer
RBA monetary policy is the primary tool; fiscal policy can reinforce by tightening structural balance.
What is equity?Show answer
Progressive tax and transfers; minimum wages and award protections.
What is environmental sustainability?Show answer
Carbon pricing (Safeguard Mechanism); subsidies for renewables (Capacity Investment Scheme); regulation.