Monetary policy Free Essays

However, share of total employment is still low due to the fact that numbers of Australians work in the services sector. The rate of unemployment rate was also misleading due to the assumption of that paid work of one hour a week means the persons is classified as â€Å"employed† (Henry Thornton, 2013 ). Employment in manufacturing has been declining dramatically (Appendix 10) and the total number of manufacturing Job losses under the Rued and Gaillardia Governments to 143,300. We will write a custom essay sample on Monetary policy or any similar topic only for you Order Now (Sophie Memorable, 2012) Besides, the high exchange rate of Australia due to mining boom make the export sees competitive and make it costly for foreign company to purchase. The industry other than mining such as manufacturing, tourism and overseas enrolment in Australia has experienced significantly reduced in export income. There’s an analysis from the Australia Institute that state out the country’s farmers have lost $43. 5 billion in export income since the mining boom pushed the Australian dollar to historic highs, suffering a 41 per cent drop in export earnings since the boom began (The Australian Institute, 2013). The manufacturing index slumped 6. 9 points 40. 3, the stakes reading since June 2009 and fifth drop in six months (SMS, 2012). A depreciation of ADD is likely to put upward pressure on the rate of inflation. A lower dollar increases the price paid on imports, leading to an increase in imported inflation. The mining boom which is cooling has contributed to the depreciated ADD and caused Australia in a dangerous position and struggling and expecting a recession (Henry Thornton, 2013). Implication for Monetary and Fiscal Policy The Australian Dollar has rising over decades not only because of economic boom, but also thank to the effort of Australian government on monetary policy. During Global Financial Crisis, many countries all around the world has suffered in economic growth. However, Australia has done pretty well and has indirectly contribute to the rising of ADD. This is due to ARAB significantly increased of Aggregate Exchange Settlement (SE) balances to a peak of $1 Billion, which usually runs at $1 billion. As the economy enters a â€Å"Systemic Liquidity Stage,† the central banks become the â€Å"lender of last resort† (LOUR), this provided banks liquidity to support themselves in a period of tough financial condition (Varian Chafer, 2009). Over the course of the cuisines cycle, the ARAB continually tighten and loosen monetary policy in order to prevent inflation spilling over it’s 2-3% average target range. (Appendix 11). The inflation target is the main guide for monetary policy decisions, and achieving that goal takes priority over other goals. The reason why Australia government want to keep inflation rate low is to stabilize the real income, drive up the economy and enhance country’s competitiveness (RUG Barron, 2013). In terms of fiscal policy, government under Gaillardia has failed to perform it well. Competitiveness of Australia’s on-mining sectors has slumping due to high company income tax (30%) as compared to other Asian competitor, for example, Singapore (15%) and government did not spent money wisely on infrastructure which would attract investor. In my own opinion, Australians new government under Tony Abbott should cut down the taxes from income. The action mentioned earlier can boost up the amount of the participation of labor force in Australia. When the worker knows that they are going to have a great earning on their real income, more of them are willing to come out to work in different industry. Appendix 12 shows increased in labor supply (supply rev moves to right) when there’s tax cut. This is following by the increase in Real Gross Domestic Product. When more labor is involve in an industry, more output is produced and leads to increase in GAP Appendix 13. Besides, government should spend more on infrastructure, introducing new technology facilitating investment to attract the investor from foreign country to invest in Australia to increase Aggregate supply and contributes to higher GAP. Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Appendix 7 Appendix 8 Appendix 9 Appendix 10 Appendix 1 Appendix 12 Appendix 13 How to cite Monetary policy, Papers Monetary Policy Free Essays Federal Reserve Board is steadily increasing the interest rates in recent years due to the sharp rise in inflation. In other words, inflation is the main important factor that forced to raise interest rates. It has been noticed first time in 2001, that Federal Reserve has made unprecedented increase in interest rates. We will write a custom essay sample on Monetary Policy or any similar topic only for you Order Now The main objective of Fed to cut interest rates is to control or restrict the flow of money in the economy and indirectly to control spending by the peoples. The change in the interest rates by the Fed for the constant years is able to achieve its objective to some extent. However, some economist’s states that Fed should not increase interest rates as it creates moral hazard and encourages taking greater risk, borrowing more and saving less. Therefore, the Central Bank is always advisable to adopt more ease policy or reduce interest rates as long as inflations remain modest and must be set up in relation to deviations in both output and inflation on desired levels. The Federal Reserve goals for monetary policy are to seek price stability, maximum sustainable economic growth and moderate long-term interest rates. These are the primary focus of every monetary policy and directly affect it’s the decision of Fed. The plan is largely affected by the labor force which is determined by specified demographic factors. It is very much affected by growth of productivity, economic growth, inflation and interest rates. The Federal Board over some past years has been constantly raising interest rates, but in recent months it is trying to edge down interest rates since the summer 2006 and also deciding to keep the inflation low ahead. In the recent Fed meeting, it is concentrated upon to change the basic picture of the economy with help of increasing exports and demand of products in world market. To increase the output at a high speed, to expand jobs and incomes at fast pace and to reduce the underlying stock and to strengthen future economic growth. To gain the confidence of more and more investors by providing effective market conditions, high quality loans at flexible rates. The Fed is also planning to support and promote sustainable growth and price stability and to ease policy to offset the effect of tighter credit conditions and to encourage moderate economic growth over time. REFERENCE Referred to sites:- Invention, Productivity, and the Economy Speech by Federal Reserve Vice Chairman Donald L. Kohn at the Greater  Ã‚  Ã‚   Philadelphia Chamber of Commerce 207th Annual Meeting, Philadelphia, Pennsylvania Dated 11th October 2007    How to cite Monetary Policy, Essay examples