(t4) policy responses and their effects in dealing with the economic objectives Flashcards

1
Q

define macroeconomic policies

A

policies that affect the economy as a whole with the aim of minimising fluctuations in the business cycle. also referred to as DEMAND MANAGEMENT policies

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2
Q

What are the three main limitations of economic policy?

A

Time lags, political constraints, and global influences

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3
Q

What are the two types of time lags

A

Implementation time lags and impact time lags

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4
Q

What are implementation time lags?

A

When it takes time for the government to make changes to or introduce new economic policies

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5
Q

What are impact time lags?

A

When it takes time for a new policy or a policy change to have an impact on the economy

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6
Q

What is the implementation and impact time lag for fiscal policy?

A

Implementation: medium term (annual budget)
Impact: short term (a few months)

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7
Q

What is the implementation and impact time lag of monetary policy?

A

Implementation: short term (monthly RBA meeting)
Impact: medium term (6 - 18 months)

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8
Q

What is the implementation and impact time lag of microeconomic reform?

A

Implementation: long term (a few years )
Impact: long term (up to 20 years)

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9
Q

When is fiscal policy important and why?

A

Fiscal policy becomes important during a downtown due to its shorter impact time lag, making it the most effective policy to achieve an immediate boost in AD

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10
Q

What are political constraints?

A

In the year before an election govts are under pressure to implement policies that are popular with the electorate but may not have long-term economic benefits

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11
Q

Why does fast domestic growth cause an increase in imports while export growth weakens?

A

Increased domestic demand for foreign goods (imports rise), rising wages & production costs (exports weaken, become less attractive, less competitive), stronger domestic currency (cheaper imports)

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