How Economic Policy Remade
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OLET1143 – How Economic Policy Remade
You are required to submit an essay of 1,000 – 1,100 words, due on Friday 18th February 2022, 5pm. The
topic is the following.
The COVID-19 pandemic prompted policymakers to enact many fiscal stimulus programs as well as
expansionary monetary policy. In Australia, the government has committed to spend a total of $311bn to
fight Covid-19 and the Reserve Bank (RBA) has kept interest rates near zero. In the U.S, the Biden
administration wants to spend $1.9 trillion to combat the coronavirus and its economic effects. While the
policies might have helped the government to combat a pandemic-induced recession, they might also
cause inflation in many developed economies. In Australia, the inflation is forecast to its highest level in
more than seven years.
Using, where relevant, the economic models discussed in the modules:
• What were main causes of the COVID-19 recession in Australia? How the fiscal stimulus and lower
cash rate may have helped us to combat a pandemic-induced recession?
• Apart from the pandemic-induced recession, low wages growth is the other reason for the
Reserve Bank of Australia to state that it intends to keep interest rates at or near their current
historical low levels for the next three years. Discuss the various reasons why wages growth has
been low over the past ten years including deregulation of the labour market, and an excessive
focus on maintaining low inflation on the part of the Reserve Bank of Australia.
• Why is the fiscal spending as well as lower cash rate might have contributed to a higher inflation
in the economy? In answering this, clearly understand and explain the transmission mechanism.
Apart from fiscal stimulus and monetary policy, identify one another factor that may have caused
higher inflation in Australia.
• Evaluate a policy option that the RBA have at their disposal to manage the impacts of high
inflation.
Note: The following are selective references for you to get started. You are not required to include all of them
in your essay. In your answer you should use economic arguments drawing on the lessons learnt in OLET1143.
Below are a series of starter references that may be useful in considering each of the issues to be discussed
listed above.
You are also encouraged to undertake other independent research and draw on the resources that have been
provided throughout the course of OLET1143.
Guidelines
• The essay should be 1000 words and no more than 1100 words.
• The essay should follow the following structure and contain the components listed I through to VI:
Title Page
A title page that includes the title of the essay and student ID (no student name). The title
page is not included in the word count.
I. Introduction (100 words recommended)
Discuss the main causes of the COVID-19 recession and provide evidence for the claim.
II. Issue, Facts, and Discussion (600 words recommended)
Explain in words together with supporting diagrams:
- How the fiscal stimulus and lower cash rate may have helped us to combat a pandemic-
induced recession.
- Discuss the various reasons why wages growth has been low over the past ten years
- Why is the fiscal spending and lower cash rate might have each contributed to a higher
inflation in the economy? Explain the transmission mechanism.
- Identify one another factor that may have caused higher inflation in Australia.
Your sources of information should be cited (see Reference section below).
III. Discussion of Policy Option (250 words recommended)
This section must contain a discussion of what might be a policy option response for the RBA
to the high inflation for Australia and why? Explain the mechanism clearly.
IV. Conclusion (50 words recommended)
This section should summarise your discussion
Below is a simple example of an in-text reference and a reference list entry:
In-text reference:
[…] In contrast to most other introductory microeconomics textbooks, Nguyen and
Wait (2016) discuss all economic concepts in a very concise manner. […]
Reference list:
Nguyen, B. & Wait, A. (2016). Essentials of Microeconomics. London, UK: Taylor &
Francis.
• Submission Instructions: Essays must be submitted electronically (in PDF or Word) via the online
submission inbox on Canvas by 5pm on Friday 18th February 2022.
Grading the Essays
• The essay represents 45% of your final grade for OLET1143.
• Essays will be graded on the basis of the substantive arguments you make, along with the clarity of
your exposition. The discussion that you set out may be enhanced by any research that you refer to
in your paper. We have provided a number of starter references and resources, though we would
encourage you to search for other relevant information about the question. Government reports
and other assessments of similar policies are a good place to look.