Unit 1
Unit 4
Aggregate Demand Policies
In Unit 3 you have learned about some of the economic challenges that we face. In Unit 4 you will be learning about the tools that policy makers can use to try and address these problems. In very general terms, policy makers will work to try and manipulate both aggregate demand and aggregate supply. The first area of study asks you to understand how aggregate demand policies are implemented.
There are two main tools that are used to achieve this goal. Although you haven’t studied them in detail, you will have heard a little bit about each one during the first half of the year.
While studying Unit 3, you will have explored the way in which changing interest rates can affect the economy. These changes are controlled by the Reserve Bank of Australia, and they form the main tool of Monetary Policy. Until now it is possible that you have been thinking of interest rates as both a supply factor and a demand factor; from now on you should focus on the impact of changing interest rates on the demand side of the economy. During your study of this topic you will learn how the Reserve Bank of Australia acts to change interest rates, and how these changes can be used to try and achieve a variety of domestic economic goals.
In May this year the treasurer handed down the federal budget. Budgetary Policy can also be used to control the level of aggregate demand. It is true that some of the policy decisions that are contained in the budget may be designed to affect aggregate supply, but in this section of the course you should focus on the impact on aggregate demand. You will learn more about the supply side impact when you are studying the final topic – Aggregate Supply Policies.