Extract 1 Australia in first recession for nearly thirty years Australia’s economy has plunged into its first recession in nearly thirty years, as it suffers the economic fallout from the coronavirus. Gross domestic product shrank by 7% in the second quarter of 2020 after contracting 0.3% in the first. Australia has had decades of steady economic growth with strong coal, iron ore and natural gas exports to a growing China. Tourism has also been a big driver of growth. This year, however, the country was hit hard – twice. When the bushfires ravaged through more than 12 million hectares, tourism was bashed and thousands of small business lost months of essential revenue. Then the coronavirus became a global pandemic. Australia closed down its borders and imposed strict social distancing rules. Nearly 1 million people lost their jobs as a result. There is also an increasingly tense relationship with China, Australia’s biggest trading partner. Australia has publicly backed a global inquiry into the origins of the coronavirus which infuriated the Chinese government. In response, China imposed an 80% tariff on Australian barley and suspended some major Australian beef imports. The Australian economy felt the pinch. The recession will keep pressure on the Reserve Bank of Australia to consider additional measures to keep the economy afloat. The central bank reduced interest rates to an all-time low to help businesses and households weather the downturn. The government has pumped more than A$200 billion (£110 billion; US$147 billion) in fiscal stimulus. Source: Adapted from BBC News, 2 September 2020.
With the aid of diagrams, explain how expansionary monetary policy is supposed to ‘keep the economy afloat’ (Extract 1).