ABSTRACT
This chapter discusses the course of monetary and fiscal policy in detail. There has been debate in Australia about various aspects of the monetary targeting. The first half of the 1970s saw a distinct lack of monetary stability in large measure, has resulted in a somewhat more disciplined process of monetary management with somewhat greater flexibility of interest and exchange rates as monetary policy has increasingly relied on more market-based techniques. The chapter explores the movements in inflation and unemployment and commenting on the influences on these movements. The high level of unemployment was a significant factor in reducing the rate of inflation below its peak, but it was not of overwhelming importance. Fiscal policy affects inflation both through unemployment and through changes in indirect tax rates. Increasing indirect tax rates, to combat inflation through contractive fiscal policy, appears to have been counterproductive, at least in the short to medium run.
