It’s been over 5 years since the heights of the financial crises, and yet the global economy still appears to be in a persisting slump. Albeit of the nascent pick up in economic activity amongst the largest economies, mainly China, US and Europe, unemployment in most parts of the developed world remains high, coupled with meagre growth rates. Observing the policy response to the slow recovery only offers reasons to lament.
If I were to use an analogy to demonstrate the effects of monetary policy and fiscal policy on the economy I would first say the economy is much like a car and GDP is much like the speed at which the car is driving at. The key assumptions are that the car is driving on an infinitely straight highway and it is equipped with 2 accelerator peddles each with its own gearbox. Why 2 accelerator peddles?
There will be a lot of people tuning into Wayne Swan’s budget speech on Tuesday night, and not just from within Australia. Provided that the Treasurer delivers a much-hyped budget surplus (despite a softening in tax revenues due to the global slowdown), he will be able to claim that Australia is one of the first developed economies around the world to emerge from the threat of the Global Financial Crisis.