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Economic Principles and Decision Making

Table of Contents

Executive Summary.

Introduction.

Macroeconomic Indicators.

Gdp of Australia.

Household Savings and Consumption.

Unemployment Rate.

Inflation Rate.

Macroeconomic Indicators of The United States.

Monetary Policies Adopted by The United States to Combat the Economic Crisis.

Fiscal Policy Responses.

Monetary Policy of Australia.

Fiscal Policies of Australia.

Conclusion and Recommendations.

Reference.

Executive Summary of Performance of The Australian Economy

The covid-19 pandemic has become a public-health threat which has resulted in profound financial impacts. In order to reduce the spread of the corona virus, the government has imposed restrictions; this has resulted in the contraction of economic activities. The stock market crashed, investment became more volatile, the unemployment rate rose sharply, economic contractions were witnessed by the australian economy (janda, 2020). this study aims to analyze the performance of the australian economy in 2020 and compare it with that of the united states. The major macroeconomic indicators are highlighted and how these factors were impacted is demonstrated. The government along with the central bank has adopted various monetary policy and fiscal policy tools to combat the financial crisis,however, the effectiveness of these tools is hampered by the shift in spending. People are saving more for the rainy days and are spending less, thereby, leading to a further slump in investment. The unemployment rate has gone up significantly. The inflation rate remains low - this can be attributed to decreasing oil prices and reduced demand. A similar situation is seen in the united states. To fight this crisis, the government has adopted fiscal stimulus and easing monetary policy, through these the government is improving the liquidity supply, however, it is challenged by rising public debt. It is recommended that severely hit individuals, corporations, and markets must be given priority and focus should now be on managing the trade-offs. The rising levels of unemployment can be reduced by upgrading the skills of people through adult learning programs and job search programs. The emphasis should be on strengthening the credit market, reducing its volatility, and expanding safety nets.

Introduction to Performance of The Australian Economy

Coronavirus Has Impacted Nearly All Countries in The World. the Virus Is Not only Leading to The Deterioration of Health but Has Also Led to Economic Depression. the Health Crisis Has Turned Into an Economic Crisis for Most of The Countries Impacted by The Pandemic Including Australia. the Coronavirus Is Having a Profound Impact on The Macroeconomic Indicators of Australia Comprising the Gross Domestic Product (gdp), Unemployment Rate, Inflation Rate,household Savings, and Consumption Patterns. This Study Aims to Analyze the Performance of The Australian Economy in The Covid-19 Phase, Compare It with The Performance of The United States Using Important Macroeconomic Indicators. Also, the Conclusion and Recommendations About Policies that Can Be Undertaken to Revive the Australian Economy Are Provided at The End of This Report.

Macroeconomic Indicators

GDP of Australia

The Australian Economy Has Seen Positive Growth for The Last 28 Years, However, This Year the Growth Is Poised. the Gdp of Australia Fell - This Can Be Attributed to The Coronavirus Coupled with Severe Drought, and Bushfires. the Economy Contracted by 0.3% in Seasonally Adjusted Chain Column Terms in The March Quarter of 2020 (australian Bureau of Statistics, 2020). Consumer Spending Fell by 1.1% in This Quarter Although They Had Stocked All the Necessary Items, However, the Decline in Travel, Tourism, Accommodation, Clothing Could Not Be Countered. in February the Asx Stock Index Declines to 37% in That Month. It Is Anticipated that The Rising Number of Cases Will Cause a Further Dip in The Index (eng, 2020). the Volatile Finances and Uncertainty Have Resulted in The Lowering of Business Investments (organization for Economic Cooperation and Development, 2020). the Projection of The Organization of Economic Development (2020) Is that The Gdp Will Dip by 6.3% in 2020.

Household Savings and Consumption

Household Savings Saw a Surge from 3.5% to 5.5% in March Quarter, This Can Be Attributed to Changes in The Mindset of People that They Are Saving for The Rainy Days (australian Bureau of Statistics, 2020b). in A Study Conducted by Bcg (2020), 84 Percent of The Australian Consumers Think that There Is an Economic Recession After Covid-19 as A Result of This, Approximately 40 Percent of The Population Feel Financially Insecure.

The Bcg Global Consumer Survey Report (2020) Indicates that 64 Percent of People Are Moving Towards a Simple Life and Are Cutting Down Their Expenditure on Premium as Well as Luxury Items.

Unemployment Rate

There Is a Lack of Demand for Goods and Services, Many Industries Are Witnessing Low Supply of Goods and Services. the Situation Is Worst as Many Firms Are Leaving the Market. This Widespread Reduction in Aggregate Demand and Loss of Supply of Goods Has Resulted in Shrinkage of The Market Size, Thereby, Has Led to Lay Off Workers. as A Result, the Unemployment Rate in Australia Is Rising Month on Month Basis. from March to April the Unemployment Rate Increased from 5.2% to 6.2%.According to The Australian Bureau of Statistics (2020), in Absolute Terms, Employment in Australia Reduced by 594,300 to 12,418,700 People from March 2020 to April 2020. the Full-Time Employment Declined by 220,500 to 8,656,900 People Whereas the Part-Time Employment Lowered by 373,800 to 3,761,800 People for The Same Period. the Number of People Unemployed Saw a Surge by 104,500 and Reached 823,300 People. the Unemployment Rate for Australia Increased by 1.0 Point and Reached to 6.2%. the Underemployment Rate Surged by 4.9 Points Reaching 13.7% in April (australian Bureau of Statistics, 2020a).

Inflation Rate

The Consumer Price Index (cpi) Decreased by 1.9% in The June Quarter, However, It Rose by 0.3% in The March Quarter (australian Bureau of Statistics, 2020). the Child Care Industry, Automotive Fuel Industry, Preschool, and Primary Education Industries Saw the Highest Decline in The Prices, However, the Rise Was Seen in The Tobacco Industry, Non-Durable Household Goods, and Furniture Industry in The June Quarter(australian Bureau of Statistics, 2020c).

Macroeconomic Indicators of The United States

According to The Bureau of Economic Analysis (2020), the Real Gdp of The U.S Fell at An Annual Rate of 32.9 % in The Second Quarter and 5% in The First Quarter in 2020. Although the Personal Income Dipped by 1%, However, Consumer Spending Rose by 5.6% in June 2020. the International Trade Deficit Surged from $49.8 Billion in April to $54.6 Billion in May (bureau of Economic Analysis, N.D.). the Cpi in June 2020 of The United States Demonstrated a Rise of 6% Overall, of Which the Food Items Showed a Rise of 4.5%, the Energy Prices Declined by 12.6% and The Other Items Except Food and Energy Witnessed a Rise by 1.2% (u.S. Bureau of Labor Statistics,2020a). the Decline in The Energy Indexes Is Attributed to A Reduction in Oil Prices. the Unemployment Rate in The United States Declined to 11.1 % in June, the Unemployed People Declined to 17.8 Million (u.S. Bureau of Labor Statistics, 2020b). This Reduction in Unemployment Is Due to A Minor Recovery of Economic Activities. the Employment Expansion Is Seen in Leisure and Hospitality, Retail Trade, Health, as Well as Education Services.

Monetary Policies Adopted by The United States to Combat the Economic Crisis

Monetary Policies Are Those Policies by Which the Central Monetary Authority of A Country (central Bank) Controls the Money Supply in The Economy. the Monetary Policy Centers on Money Supply and Interest Rates. the Objective of Monetary Policy Is to Promote Maximum Employment, Ensure Price Stability, and Maintain Moderate Long Term Interest Rates. the Fed Has Adopted Easing Monetary Policy to Improve the Economic Conditions (federal Reserve, 2020). the Federal Open Market Committee (fomc) Has Reduced the Target Range for The Federal Funds Rate by 1 ½ % Points. as A Part of Open Market Operations, the Fomc Is Buying Treasury Securities as Well as Agency Mortgage-Backed Securities (federal Reserve, 2020). Also, the Term Repurchase Agreement Operations Are Made Easily Available. to Increase the Liquidity, the Emphasis Is on The Establishment of Temporary U.S. Dollar Liquidity Arrangements (federal Reserve, 2020).

Fiscal Policy Responses

The Fiscal Policy Is the Revenue and Expenditure Policy of The Government. the Government Tries to Achieve Its Objective of Growth and Stability of The Economy Through Fiscal Policy by Varying the Size and Composition of Taxes and Spending. the Government Has Planned to Increase the Expenditure to $2 Trillion in The Financial Year 2020-2021, of This Amount $454 Billion to Be Provided to The Department of The Treasury to Foster Smooth Lending Facilities and $ 46 Billion for Providing Support to The Airline Industry(federal Reserve, 2020). Moreover, the Income Support Payment Amounts to $290 Billion as One-Time Payments to The Households, the Unemployment Insurance Benefit Accounts to Be $230 Billion and $90 Billion as Tax Relief for The Households Is Provided. the Loans and Grants to Small Businesses Include the Paycheck Protection Program that Is Allotted $670 Billion to Promote Business with Less than 500 Employees and $90 Billion Is Allocated to Small Business Administration Economic Injury Disaster Loans (federal Reserve, 2020). the Direct Purchases and Aids to State and Local Governments Were Allocated $260 Billion; the Expenses Are Related to Providing the Relief Fund to Combat the Covid-19 Pandemic, Temporary Rise in Medical Expenditures Share as Well as For Disaster Relief Fund for People and Corporations Affected by The Crisis. the Other Aid to The Business Was Provided with The Amount of $420 Billion that Incorporates the Delayed Payments of Employer-Side Payroll Taxes, Relief from Payroll Taxes to Significantly Impacted Organizations (federal Reserve, 2020).

Table: Fiscal Support in The Financial Year 2020

Aids to Households

$740 Billion

Loans /grants to Small Businesses

$760 Billion

Other Aid to Business

$420 Billion

Government Purchase/grants

$260 Billion

Fiscal Support in The Financial Year 2020

Monetary Policy of Australia

In March 2020, the Reserve Bank of Australia (rba), the Cash Rate Was Reduced to 0.25 Percent. This Is to Promote Cash Flow Among Businesses and Households. the Government Is Targeting a 3-Year Government Bond Yield to Approximately 0.25 Percent: The Central Bank of Australia Has Targeted the Overnight Cash Rate. Further, the Bank Has a Targeted Risk-Free Interest Rate Along the Yield Curve. to Reduce the Funding Cost Across Australia the Target for The Yield on 3-Year Government and To 0.25 Percent. the Bank Is Using Quantity Easing of Monetary Policy, Thus the Rba Is Buying the Government Bonds in The Secondary Market. the Rba Is Providing the Term Funding Facility to Reduce the Funding Cost as A Result of The Business and Household Can Take Credit from Banks Easily. the Reserve Bank of Australia and The United States Have Set the Temporary Swap Line to Provide the Us Dollar Liquidity. Though This the Rba Can Have Access up To the Us $60 Billion in Exchange for Australian Dollars. 

Fiscal Policies of Australia

The Australian Economic Support Package Accounts for $259 Billion Which Is Associated with Fiscal and Balance Sheet Support as A Part of The Fiscal Stimulus Package, the Government Is Providing (australian Government, 2020). Job Keeper Payment, This Program Will Support the Organizations to Provide Employees Their Wages. as A Result, the Employees Will Not Be Laid Off and Will Have a Source of Income. for The Payments to Support the Household Category, the Government Is Providing Separate Payments Worth $750 Each to Social Security, Veteran, and Other Income Support Recipients. as A Part of Fiscal Stimulus, the Government Is Enabling It by The Means of Tax Deferral and Relief, Cash Payments, and Other Income Support Subsidies. the Government Is Aiding the Airline Industry by Easing the Tax Policy; They Are Released from Paying Several Taxes.

Conclusion and Recommendations on Performance of The Australian Economy

The Covid-19 Pandemic Has Resulted in Human and Economic Hardships Across the Globe. the Virus Has Not only Hampered the Health Industry but Has Also Caused a Sharp Decline in The Growth Rates, Economic Activities, Consumer Spending, and The Employment Rate. Australian Economy Which Has Seen Positive Growth for 28 Years Couldn’t Remain Unaffected by This Crisis (janda, 2020). the Reduced Aggregate Demand and Supply of Goods and Services Accompanied by The Liquidity Crunch Have Resulted in A Decline in The Gdp Growth Rates. the Unemployment Rate Increased, However, the Reduced Demand and Low Price of Crude Oil Held Down Inflation. This Was True in The Case of The United States, the Cpi for Energy Decline While the Food Items and Other Items Category Saw a Rise. the Unemployment Rate Increased Initially, However, a Reduction in Containments and Opening up Of Markets Has Led to A Reduction in The Unemployment Rate. Central Banks Along with The Government of Both Countries Are Actively Taking Steps to Bring the Economies out Of Their State of Economic Depression. the United States as Well as The Australian Government Are Following Easing Monetary Policy and Fiscal Stimulus to Reduce the Negative Effect of The Pandemic. 

The Government of Australia Is Stimulating the Economy by Fostering Income Flows to The Unemployed People and People Who Are Significantly Impacted by The Crisis and Safeguarding the Small Businesses by Providing Them with Safety Nets and Easier Availability of Credit. the Financial Markets Dysfunctional and Remain Highly Volatile, to Combat This, the Government Lowered Funding Costs, Housing, and Business Interest Rates (reserve Bank of Australia, 2020). These Policies Are a Strong Response but The High Household Indebtedness Leads to Debt-Servicing Issues Combined with The Housing Market Downturn Hinders the Recovery (organization for Economic Cooperation and Development, 2020). the Bank’s Bond Purchases Combined with The Increased Liquidity to The Financial Institutions Have Improved Slightly the Market Conditions (reserve Bank of Australia, 2020). Total Credit Growth Surged in The March by 5 1/4% from 3 ½ % in February, However, the Decline in Economic Activities, Increased Saving Levels, Underperforming Financial and Non-Financial Companies Dampens the Demand for Credit (reserve Bank of Australia, 2020).

The Monetary Policy Adopted by Australia Will Foster Recovery if It Is Implemented Well and The Benefits Outreach All the Sections of The Society. Rba Is Working Together with The Australian Government, the Treasury, and The Financial Regulators to Help and Support the Australian Economy. the Monetary Policy Takes Time to Show Its Results, It Is Too Soon to See the Results. However, the Fiscal Measure Will Prove to Be More Effective when People Can Leave Their Homes and Work. the Rise in Public Debt Is a Serious Challenge. the Focus Must Now Be on Providing Sufficient Resources to Individuals, Households, or Corporations Severely Hit by The Pandemic (ariccia, Mauro, Spilimbergo & Zettelmeyer, 2020). the Employment Can Be Increased by Promoting Skills Enhancements Through Adult Education as Well as A Rapid Job Search Program (organization for Economic Cooperation and Development, 2020).Along with It, the Emphasis Is on Managing the Trade-Off. the Cash or Kind Transfers or Subsidies Loans Must Be Provided to Those Corporations that Do Not Support Layoffs. the Distressed Corporations Who Are About to Get Bankrupt, the Government Can Take an Equity Stake in Those Corporations. for The Small and Medium-Sized Industries Can Be Supported Through Direct Payments and Reduced Tax Payments. During the Pandemic, International Trade Suffered. the Domestic Policies Must Be Pushed Along with Policies that Promote International Trade and Cooperation (ariccia Et Al., 2020). During This Time, People Are Restricted to Move Out, However, the Trade Must Flow Free Especially of The Health-Care Items, and The Exchange of Scientific Information to Deal with This Disease Must Be Promoted .Continuous Efforts to Monitor Records and Evaluate the Results of Policies and Taking the Timely Corrective Actions Will Foster Faster Recovery and Will Strengthen the Economy by Preparing Them for Any Further Outbreaks.

Reference for Performance of The Australian Economy

Ariccia, G., Mauro, P., Spilimbergo, A. &zettelmeyer, J. (2020).EConomic Policies for The Covid-19 War. retrieved from Https://blogs.Imf.Org/2020/04/01/economic-Policies-For-The-Covid-19-War/

Australian Bureau of Statistics. (2020). Australian National Accounts: National Income, Expenditure and Product, Mar 2020. Retrieved from Https://www.Abs.Gov.Au/ausstats/abs@.Nsf/mf/5206.0

Australian Bureau of Statistics. (2020). Consumer Price Index, Australia, June 2020. Retrieved from Https://www.Abs.Gov.Au/ausstats/abs@.Nsf/mf/6401.0#:~:Text=6401.0%20%2 D%20 Consumer%20 Price%20 Index%2 C%20 Australia%2 C%20 June%202020&text=fell%201.9%25%20in%20the%20 June,to%20the%20 March%202020%20quarter.

Australian Bureau of Statistics.(2020). Labor Force, Australia, April 2020. Retrieved Fromhttps://www.Abs.Gov.Au/ausstats/abs@.Nsf/allprimarymainfeatures/5383175 C81 Dd2 A0 Eca25858 A00263 A2 B?opendocument

Australian Government.(2020). Economic Response to The Corona Virus. Retrieved from Https://treasury.Gov.Au/sites/default/files/2020-03/overview-Economic_Response_To_The_Coronavirus_2.Pdf

Bureau of Economic Analysis.(n.D.).U.S. Economy at A Glance. Retrieved from Https://www.Bea.Gov/index.Php/news/glance

Eng, D.V.P. (2020). how Will the Corona Virus Affect the Australian Economy? Lessons from The 1918-1919 Spanish Flu Pandemic. retrieved from Https://www.Cbe.Anu.Edu.Au/about/content/news/2020/how-Will-The-Coronavirus-Affect-The-Australian-Economy/

Federal Reserve (2020).Monetary Policy Report June, 2020. Retrieved from Https://www.Federalreserve.Gov/monetarypolicy/files/20200612_Mprfullreport.Pdf

Janda, M. (2020). Australia in Its First Recession in 29 Years as March Quarter Gdp Shrinks. Https://www.Abc.Net.Au/news/2020-06-03/australian-Economy-Gdp-Recession-March-Quarter-2020/12315140

Organization for Economic Cooperation and Development (2020).Australia Economic Snapshot- June 2020. Retrieved from Http://www.Oecd.Org/economy/australia-Economic-Snapshot/

Reserve Bank of Australia.(2020). Statement on Monetary Policy; May 2020.Retrieved Fromhttps://www.Rba.Gov.Au/publications/smp/2020/may/pdf/statement-On-Monetary-Policy-2020-05.Pdf

Reserve Bank of Australia.(n.D.).Supporting the Economy and Financial System in Response to Covid-19.Retrieved from Https://www.Rba.Gov.Au/covid-19/

U.S. Bureau of Labor Statistics. (2020a). Consumer Price Index. Retrieved from Https://www.Bls.Gov/cpi/

U.S. Bureau of Labor Statistics. (2020b). The Employment Situation- June 2020. Retrieved from Https://www.Bls.Gov/news.Release/pdf/empsit.Pdf

Wegner, M. &zaveri, I. (2020). AuStralian Consumer Sentiment Snapshot #1.Confidence, Nostalgia and Shifting Trust. Retrieved from https://www.bcg.com/en-au/capabilities/marketing-sales/australian-consumer-behaviour-economic-recovery-post-covid.aspx

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