budgetary

Question 1

what do Budget revenues come from

Answer 1

comes from direct taxes (personal and company profits), indirect taxes (GST), non-tax revenue (revenue from government businesses - Aus Post, sale of government assets - Qantas)

Question 1

Budgetary policy

Answer 1

governments use of a budget to improve living standards, efficient allocation and macroeconomic goals

Question 2

Different taxes on income

Answer 2

Progressive: higher income earners pay higher tax - vice versa

Proportional: rate of tax stays the same regardless of income (company tax 30%)

Regressive: proportion of tax rises as income falls ( GST ) - vice versa

Question 3

Budget expenses + types

Answer 3

spending of the government

Types:

Government Consumption/Current Spending: day-to-day expenses of government (e.g. paying staff in public sector)

Government investment/capital spending: social and economic infrastructure

Government Transfer Payments: welfare benefit, grants, industry assistance

Question 4

the stance of budgetary policy

Answer 4

expansionary (stimulate AD) or contractionary (reduce AD)

Question 5

budget outcomes

Answer 5

balanced (don’t focus on much): total value of revenue equals the value of expenses (neither expansionary or contractionary)

deficit: more expenses than revenue ← expansionary because there is more spending (to get here)

surplus: more revenue than expenses ← contractionary because there is less spending (to get here)

Question 6

finance a deficit/utilise a surplus

Answer 6

Finance a deficit: borrow from overseas, borrow from RBA

Utilising a surplus: reduce debt, save with RBA, add to special savings fund

Question 7

automatic stabilisers + examples

Answer 7

changes to the budget that occur without deliberate government intervention and result from changes in economic activity

e.g. during low economic activity there will be less tax receipts and payments to welfare are likely to rise (vice versa) → increases AD

Question 8

discretionary stabilisers + examples

Answer 8

designed to change revenue or expenses in an effort to influence economic activity

e.g. alter tax rates on incomes

Question 9

budgetary impact on goals

Answer 9

inflation: expansionary: increased inflation, contractionary: decreased inflation

full employment: more expansionary budget, higher AD, higher demand for labour

strong and sustainable growth: low growth rates, expansionary budget to grow the rates

Question 10

strengths of budgetary policy

Answer 10

strengths:

government can target particular industries

effective in stimulating AD

does not take long for impact to be visible

target greater range of economic goals

Question 11

weaknesses of budgetary policy

Answer 11

subject to political hurdles to prevent policies being put in place

political bias