Unit 4: Economic policies and management

The unit explores how economic policies and actions, such as fiscal policy, monetary policy and microeconomics policy operate in the pursuit of the Australian Government's economic objectives. Students examine the effects of the operation of policies in Australia using economic models along with recent economic data. Students apply the language, theories and tools of economics to develop a critical perspective on the Australian Government policy mix. 

In this guide, content taken directly from the syllabus is shown in purple.

A structural change is an economic condition that occurs when an industry or market changes how it functions or operates. 

For example, a subsistence economy may be transformed into a manufacturing economy, or a regulated mixed economy may be liberalized. A current driver of structural change in the world economy is globalization.

South Korea had an agricultural economy before the 1950s. During the 60s and 70s, it underwent structural reform and is now a tech economy. SK is about the 15th largest economy. 

Productivity measures output per unit of input, such as labor, capital or any other resource – and is typically calculated for the economy as a whole, as a ratio of gross domestic product (GDP) to hours worked. In other words, productivity measures out efficiently resources are being used.

Labor productivity- ratio of hours worked/GDP output

Multifactor productivity- ratio of all inputs/all output

The business cycle describes the rise and fall in production output of goods and services in an economy. Business cycles are generally measured using the rise and fall in real gross domestic product (GDP) or GDP adjusted for inflation.

In economics, aggregate expenditure is the current value of all the finished goods and services in the economy. It is the sum of all the expenditures undertaken in the economy by the factors during a specific time period. The equation for aggregate expenditure is: AE = C + I + G + NX.

Written out the equation is: aggregate expenditure equals the sum of the household consumption (C), investments (I), government spending (G), and net exports (NX).

The upward-sloping aggregate supply curve shows the positive relationship between price level and real GDP in the short run.
The downward-sloping aggregate demand curve shows the relationship between the price level for outputs and the quantity of total spending in the economy.

In Australia, the governments have a range of economic policy objectives. Some of these may conflict, and good economic management is often a balancing act between these different priorities: sustainable economic growth, low inflation (price stability of goods and services), low unemployment, equitable distribution of income, efficient allocation of resources.​

A major challenge in economic policy is time lags. These describe the time between when the government recognises, decides, implements and effects a policy change to address a problem. 

Fiscal policy involves the government determining how to raise money (taxation) and how to spend it (the budget). The Australian Government Treasurer gives a yearly speech outlining the Budget, which Parliament must vote to approve. The key concern of fiscal policy is taxation vs. government services.

Monetary policy is a process where the supply of money in an economy is controlled in order to ensure stability in an economy. This is done by regulating the supply (printing quantity) of money and by adjusting the short-term borrowing cost. In Australia, monetary policy is determined by the Reserve Bank of Australia, who meet on the first Tuesday of every month to decide on interest rates. The key concern of the RBA is inflation vs. unemployment.