60.1K

Verified Solution

Link Copied!

Consider the policy responses by the Federal government and the Reserve Bank of Australia (RBA) to the pandemic-induced recession of the first half of 2020. Fiscal stimulus measures and expansionary monetary policy have played a critical role in promoting economic stability and preventing a deep recession, as pointed out in these articles (listed in chronological order):

On fiscal policy,

• Hutchens, Gareth, Stephanie Chalmers and Michael Janda (2021) GDP figures show economy shrank in 2020 but grew 3.1 per cent in December quarter, ABC News, March 18, available: https://www.abc.net.au/news/2021-03-03/gdp-december-quarter-2021/13210412
• Hutchens, Gareth (2021) NSW has a plan to reopen after COVID lockdown, but will Australias economy bounce back this time?, ABC News, September 9, available: https://www.abc.net.au/news/2021-09-09/will-the-economy-bounce-back-strongly-from-these-lockdowns/100443392

On monetary policy,

• Holden, Richard (2021) The RBA wants to cut unemployment, and nothing not even soaring home prices will stand in its way, The Conversation, May 7, available: https://theconversation.com/vital-signs-the-rba-wants-to-cut-unemployment-and-nothing-not-even-soaring-home-prices-will-stand-in-its-way-160171
• Jericho, Greg (2021) Things have changed in Australia. But the interest rate is unlikely to for some time, The Guardian, August 3, available: https://www.theguardian.com/business/grogonomics/2021/aug/03/things-have-changed-in-australia-but-the-interest-rate-is-unlikely-to-for-some-time

Assume there were no fiscal stimulus measures to the macroeconomic shock from the coronavirus in 2020-2021, and it was left solely to a monetary policy response. Elaborate on what you think would happen to such an economy.

Answer & Explanation Solved by verified expert

See Answer