Australia and its economy
The international economy has a decisive influence not only on Australia’s prosperity, but also on how that prosperity is distributed among Australians. International economic issues are therefore a high priority on Australia’s foreign policy agenda. Australia has enjoyed impressive economic growth since the mid-1990s, better than in most advanced industrialized countries. That does not mean, however, that life is perfect in Australia. Under conditions of globalization, high rates of growth are accompanied by widening inequalities of wealth and income, continuing unemployment and deteriorating working conditions as the labor market becomes more flexible. Many Australians have benefited marginally, if at all, from a growing economy, and some regard globalization as a disaster (Firth 2005).The recent sustained growth of the economy suggests that the foundations laid for Australia’s articulation with the international economy were the right ones for an age of globalization. Yet many Australians remain suspicious of the foreign policy consensus of the major parties. Globalization is changing the modern state, including Australia, in fundamental ways. Countries now compete more aggressively for shares of the world market. They are becoming ‘competition states’ in which governments calibrate policies according to international standards (Moran 2004). Australia has a successful economy that has the services sectors at its helm. Australia’s growth has been an annual rate of 3.6% for over 15 years. If compared to the economies UK, Germany, and France, Australia’s per capita GDP is a bit higher. In such comparison the purchasing power parity is the basis.
Contribution of the components of aggregate expenditure to the slowing down of economic growth
Aggregate expenditure levels were controlled and managed through general financial and economic policy. Detailed expenditure control of appropriated funds was maintained through the department’s accounting function. In terms of results, some control of aggregate expenditure levels was achieved by the Fraser government especially if it were assumed that without explicit constraint expenditure outlays would have continued to trend upwards. The strategy of limiting commitments and containing current outlays so that government lived within its budget met with some initial success in reducing expenditure increases. The effectiveness of these measures was always likely to be short-term because they remained exclusively ex ante and ex post controls imposed from central agencies (Forster, Kelly & Wanna 2000). The problem was that central agencies could not control the expenditure decision making within agencies that could create unforeseen expenditure blow-outs. When forced to operate under such external controls yearly, spending agencies gradually invented creative ways of circumventing these limits to secure additional staff and resources beyond those permitted (Forster, Kelly & Wanna 2000).
Any relaxation in the impetus for continuing expenditure restraint is likely to shift the relationship between budget actors. Paradoxically, having now delivered surpluses the dominant position enjoyed by guardians will come under challenge and their ability to control aggregate expenditure is likely to be eroded. The existence of a surplus will tend to excite new demands for spending and spender arguments will have greater currency in budget decision-making Although Parliament was presented with a detailed list of intended budgetary spending, in practice there was little or no management information on what or how resources were expended (Cleaver 2002). The system was strong on ex ante controls but weak on expenditure management. A complicated and labor intensive system of detailed controls was imposed on spending departments with limited effect, often structuring perverse incentives into resource demands and in-year deployment. There was little emphasis on the performance of either departments or government business enterprises. Australia’s system of public expenditure has undergone considerable procedural and instrumental change. Together these changes have greatly expanded the potential for better decision-making, based on more transparent and reliable information (Cleaver 2002). Consumption dropped from 4.0 in 2006-2007 to 3.7 in 2007-2008. There was a drop in all activities that involved consumption whether it is purchase of vehicles, operation of vehicles or purchase of food. The income from investment dropped from -45, 349 in the period 2006-2007 to -48,177 in the period 2007-2008. Although there were improvements in the international investment position this was not transmitted to better income from investments. There was an increase in the total general government final consumption expenditure from March of 2008 to December of 2008. The expenditure rose from ,371,000 to ,734,000. Net exports were responsible for an increase of 1.5& points to GDP growth but one component of net exports which is the volume of imports. Imports fell slightly and this did not help improve the economy.
Aggregate demand –aggregate supply equilibrium
Australia is currently in an aggregate supply. The crisis forced lesser consumption. This created a reduction of the real domestic output. It also contributed to the slowdown of the economy. If the country would want to shift to aggregate demand it would need to make use of a good fiscal policy. If an economy in recession accepts a good stimulatory fiscal policy the result would be better rates of GDP and lower rates of inflation. It would then result to renewed confidence from businesses and consumer thus their confidence ratings will improve. It will affect the future of the country and the businesses within it. If an economy in recession accepts an unacceptable stimulatory fiscal policy the result would lower rates of GDP and surging rates of inflation and there would be lower confidence ratings from businesses and consumers. The fiscal policy would help in encouraging more consumption and a decrease in supply then a shift to an increase in demand.
Effectiveness of monetary and fiscal policies
Australia’s products come in different form but most come from the manufacturing industry. The countries products have considerable success in the international and local market. Australia’s trade relations activities reduced the impediments which Australian firms face in the conduct of international business in the various markets it engages in; the state has reduced the impediments that make it difficult for their people to conduct businesses in their market. Australia has free trade agreements with various countries, this kind of agreement eliminate tariffs and quotas. The global financial crisis paved the way for Australia to make use of measures that would lessen the impact of the crisis. Most macroeconomic policy has its focus on the fiscal policy. In the fiscal policy the head of state had tight control of government expenditure. This led to surplus and curbing of the structural deficit. The fiscal and monetary policies used by Australia have been able to prevent a larger damage by the financial crisis. The fiscal and monetary policies helped the country and the financial institutions to survive the financial crisis. Some experts believe otherwise. They think that the fiscal policy creates benefits for the state for quite some time but after such time the fiscal policy is being characterized by more deficits. They believe that the Australian government not only needs to use monetary and financial policies but they need to reduce extreme capitalism. Experts believe that extreme capitalism adds more problems to the economy. Experts also believe that a moral leadership will help Australia in surviving the financial crisis. Moral leaders will make the best decisions and policies for the country.
References
Australian Bureau of Statistics 2009, Economic Indicators, viewed 22 May, 2009, http://www.abs.gov.au/.
Cleaver, T 2002, Understanding the world economy,
Routledge, London.
Firth, S 2005, Australia in international politics: An
introduction to Australian foreign policy, Allen & Unwin,
Crows Nest, N.S.W.
Forster, J, Kelly, J & Wanna, J 2000, Managing public
expenditure in Australia, Allen & Unwin, St. Leonards,
N.S.W.
Moran, A 2004, Australia: nation, belonging, and
globalization, Routledge, New York.
Kelly, J & Wanna, J 2000, Managing public expenditure in
Australia, Allen & Unwin, St. Leonards, N.S.W.
Credit:ivythesis.typepad.com
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