Australian Politics and Policy - Senior, 2019a

Alan Fenna
Key terms/names
comparative advantage, counter-cyclical policy, economic recession, fiscal policy,
GDP, industrial policy, innovation, Keynesianism, macroeconomics, market
economy, microeconomics, monetary policy, productivity, trade agreements
It is ‘the economy’ that provides the goods and services we consume. It is also
the economy that provides the jobs and business opportunities that enable us
to purchase those goods and services. And it is the economy that provides the
taxrevenuetofundtheactivitiesofgovernment.Itiseasytosee,then,why
managing the economy is one of the most important tasks of government. At the
macroeconomic level,thetaskistokeepeconomicgrowthupandunemployment
and inflation down. At the microeconomic level,thetaskistooptimisethestructure
of the economy for longer-term performance, ensuring that it remains internationally
competitive.
In a ‘market’, ‘free enterprise’ or ‘capitalist’ system, dominated by private ownership
and free exchange such as Australia's, the government can only influence how
well the economy functions. Moreover, a small national economy such as Australia’s
is often at the mercy of events in the world economy. The main tools government
has at its disposal to influence the economy are:
• fiscal policy: the way it taxes and spends
• monetary policy: setting official interest rates
• financial regulation: the rules governing banking and investments
Fenna, Alan (2019). Economic policy. In Peter J. Chen, Nicholas Barry, John R. Butcher, David Clune,
Ian Cook, Adele Garnier, Yvonne Haigh, Sara C. Motta and Marija Taflaga, eds. Australian politics and
policy: senior edition. Sydney: Sydney University Press. DOI: 10.30722/sup.9781743326671
541