Solution 1

Based on the data given on the site ABS(Australian Bureau of Statistics), we are presenting
a trend line of the GDP of Australia.

GDP growth rate of Australia

2.00.8 0.5 0.6
-0.3
Precentage growth

0.0
Jun-19 Sep-19 Dec-19 Mar-20 Jun-20
-2.0

-4.0

-6.0 -7.0

-8.0
Time period(qaurterly)

GDP is an aggregate measure of the value of goods and services in the economy at any
given year. It is the best indicator of the performance of the economy. In the recent quarter
GDP of the world is negatively hit by the coronavirus outbreak. Ali the economy across the
world or better to say that the world economy faces the running recession across the world.
It is happening because immediate shut down of all economic activity across the world
because there is a huge risk of spread of the virus from the mass accumulation. All the
economy stooped their economic activity without thinking of the effect of the same because
of the very danger cause.

In the third quarter of 2019(Jun 19 to Sep 19) Australian economy faces a 3% decline in
GDP growth due to global creeping recession. In the fourth quarter of 2019 Australian
economy faces bit growth rate(1%). In the first quarter of the 2020 Australian economy also
started facing negative growth rate due to covid outbreak. In the second quarter of 2020 like
all the most economy of the world Australian economy also faces worse effect and found
almost 10% negative change in GDP growth rate due to worldwide lockdown.

The same pattern also followed by Australia, the government of Australia

takes the steps what was suitable and applicable to the situation. We know that the from the
consumption method GDP are aggregates of expenditure as the whole economy, it means
expenditure made by an individual, investment expenditure, government expenditure and
trade surplus.

GDP = C+ I+ G + EX

Where C represents the private expenditure I represents the Investment, G represents the
government spending and EX represent the net trade.

Change in the component of GDP

 Private consumption(c): Due to covid outbreak the private consumption contracts

very much, people are only maintaining their basic consumption(Food, medical etc).
This portion in the Australian economy has a huge proportion of around 55% of its
 nominal GDP in 2019 and around 50% in 2020 expected. It absorbs a significant
decline during the covid outbreak.
 Investment: It consists of both public and private inventment in the economy, the
Australian economy accounted for around 22% investment consumption in 2019 and
around 20% in 2020 expected.
 Government spending: It is also the very significant component of the GDP,
Australian economy accounted for around 18% but it found significant growth in 2020
that will be expected to 36% of GDP.
 Net trade: Due to lockdown the trade relation between international countries
eradicated. Australian economy major importer of the seafood, resources, uranium
etc. it has a trade surplus with most countries like china(seafood) Hong-
kong( seafood). So the outbreak leads to complete distraction of the trade relation, so
the proportions of the Net trade declined in the first two quarters of 2020.

Question 2

During covid 19 outbreak most of the economy utilised monetary as well as fiscal policy
to protect the devastation of the economy. United States of America Canada, Germany,
Japan, UK, India etc. countries spent around more than than 10% of their respective
GDP in the war with COVID-19 pandemic. Rarely any county achieve a successful
result. During this pandemic, Australia also uses both fiscal policy and monetary policy
as well but cannot overcome the situation.

Fiscal policy of Australia

At the Commonwealth level, fiscal policy, comprising of consumption and

income estimates worth A$272.3 billion (14 per cent of GDP), has been set up through
FY2023-24. These measures are reflected in the FY2021 financial plan (delivered on
October 6), and most of the boost will be executed through FY2020-21. The boost
incorporates the multiyear JobMaker program (A$73 billion), including new measures
(misfortune convey backs and individual salary tax reduction), just as the augmentation
of existing measures (full discounting, framework speculation, among others). The
general improvement incorporates recently declared JobKeeper wage appropriations
(5.4 per cent of GDP), salary backing to family units, income backing to organizations,
speculation motivations, and focused on measures for influenced locales and ventures
(counting the HomeBuilder program supporting the development business).

Fiscal policy, in the form of stimulus, is critical at this point, as it allows for the society to
access immediate funds. For example, let say the government of Australia is providing
the fiscal fund to the society who lost their business or job. By providing such kind of
fiscal fund the government is trying to boost aggregate demand by injecting the fund in
the society because the higher level of capital liquidity in the economy will lead to the
increment in the aggregate demand of services and goods economywide. High level of
aggregate demand will lead to accelerating the economic activity in the Australian
economy, that is the optimal way how the economy can get back on track. But due to
lack of the accurate time of policy implementation, it has inner effect in the Australian
economy.

The commonwealth government made a various mistake while implementing the fiscal
policy, we can list the mistakes made by the Australian government.
 Delay in implementation( most of the policy are showing its effective date in
upcoming years)
 Lack of timing
 Targeting business rather than individual
 Lack of proper evaluation of the actual economic situation.
 Implementing the policy without estimating its negative impact( highest fiscal
deficit.

Monetary policy

The interest rate was cut by 25 basis point twice on March 3 and 19, to 0.25 per cent.
On March 19, the Reserve Bank of Australia (RBA) reported yield focusing on 3-year
government securities at around 0.25 per cent through the acquisition of government
securities in the auxiliary market. The RBA has kept up this strategy setting in all
ensuing money related approach gatherings (the keep going was hung on October
6). To help liquidity, the RBA will lead to one-month and three-month repo tasks day
by day until additional notification. Repo tasks of longer-term developments (a half
year or more) will be held at any rate week after week, insofar as economic situations
warrant. The RBA has set up a tradeline with U.S. Taken care of for the arrangement
of US dollar liquidity in sums up to US$60 billion. To help the arrangement of credit,
particularly to SMEs during the time of interruption brought about by COVID-19, the
RBA set up a A$90 billion Term Funding Facility (TFF) in March for banks to get to
three-year subsidizing at 25 premise focuses until September. The RBA has as of
late extended the TFF to A$200 billion and broadened the entrance through June
2021.

The monetary policy differently affect the economy, it target money supply and
demand. For example reduction in the interest rate encourages the business firm or
individual to borrow money frequently that will leads to direct injection to the
economic activities. It will directly positively hit the economic activity and the wheel of
the economy will be speedier because of increment in the aggregate supply of
services and goods. Increment in the economic activity will generate employment,
may cause a reduction in recession rate. That is the way how the Australian
economy trying to get back from the COVID-19 situation.

The current monetary policy regime in Australia is " inflation-targeting"

– keeping inflation in a band between 2 per cent and 3 per cent over the cycle.
Expansion focusing on served Australia well for an extensive stretch from its
adoption during the 1990s. The problem of RBA to apply traditional monetary policy
because according to time things are changing and need for monetary policy also. So
the ABS should rethink and revisit to itas policy because it is not the magical-stick
that can apply anywhere and any situation.
 Reference

 IMF, Oct 2020, Policy Tracker COVID-19

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#A
 OECD, May 2020, Policy Responses to Coronavirus (COVID-19)
https://www.oecd.org/coronavirus/policy-responses/tax-and-fiscal-policy-in-response-
to-the-coronavirus-crisis-strengthening-confidence-and-resilience-60f640a8/
 KPMG, Sep 2020, Government and institution measures in response to COVID-19
https://home.kpmg/xx/en/home/insights/2020/04/australia-government-and-
institution-measures-in-response-to-covid.html
 ABS, June 2020, Quarterly estimates of key economic flows in Australia, including gross
domestic product (GDP), consumption, investment, income and saving.
https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-
accounts-national-income-expenditure-and-product/latest-release
 RBA, 2020, Supporting the Economy and Financial System in Response to COVID-19
https://www.rba.gov.au/covid-19/