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QLDEconomicsQuick questions
Unit 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 automatic stabilisers and discretionary policy?Show answer
Automatic stabilisers dampen the cycle without active decisions:
What is recent Australian Budget outcomes?Show answer
Net federal debt around 22 percent of GDP in 2024-25, moderate by international standards (US ~95%, UK ~90%, Japan ~159%).
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 transmission mechanism?Show answer
1. Interest rate channel. Cash rate flows through to retail rates. Higher rates raise borrowing costs and reduce consumption and investment.
What is 2022-24 monetary policy cycle?Show answer
Outcomes: - Trimmed mean CPI: 6.9% (Q4 2022) → 3.2% (Q4 2024). - Unemployment: 3.5% → 4.1%. - Real GDP growth: 3.8% → 1.3%.
What is strengths and weaknesses?Show answer
Fiscal policy strengths: - Direct AD effect. - Targeted. - Distributional impact via tax and transfers. - Public good provision.
What is the policy mix?Show answer
Coordinated fiscal and monetary policy is more effective than either alone:
What is policy responses by macroeconomic objective?Show answer
Strong and sustainable growth. Counter-cyclical fiscal and monetary policy; supply-side reform for long-run growth.
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.