Economic Management Flashcards
Demand management policies - fiscal policy
Fiscal policy is a government method of macroeconomic stabilisation which refers to the management of the level, composition, and allocation of government taxation and expenditure in order to influence national aggregate demand
What are fiscal policy goals
- Influence the market allocation of resources (reallocation of resources role)
- Influence the market distribution of income (redistribution of income role)
- manage aggregate expenditure (the market stabilisation role)
what is budget surplus
it is an outcome of fiscal policy which refers to when revenue from taxes, changes and income from government businesses exceeds government expenditure.
What is budget deficit
it is an outcome of fiscal policy refers to when the revenue from taxes, changes and income from government businesses is less than government expenditure
what are Automatic stabilisers
are features of non-discretionary fiscal policy which refers to those elements of government policy that counterbalance changes in economic activity and demand without international government action .
Discretionary fiscal policy
Is a branch of fiscal policy refers to deliberate actions of the government to change the level and composition of taxes and expenditure to directly influence aggregate economic demand.
non-discretionary fiscal policy
is a branch of fiscal policy which refers to automatic in built responses in cyclical changes in aggregate economic activity over a fiscal policy period.
contractionary fiscal policy stance
refers to a policy stance of the government in which the budget deficit is reduced or a budget surplus is implemented or increased, such that aggregate demand may be reduced within the economy through the multiplier effect and reduced government expenditure.
Expansionary fiscal policy stance
refers to a policy stance of the government in which budget surplus is reduced, or a budget deficit is implemented or increased, such that aggregate demand may be improved within the economy through the multiplier effect by increased government expenditure
Non Discretionary fiscal policy
The outcome of the budget may often be influenced by changes in the economic cycle automatically triggering none-discretionary changes in fiscal policy. These changes are referred to as an automatic stabilisers, specifically, important economic stabilisers are progressive income tax, unemployment, and welfare benefits.
Discretionary fiscal policy
This is where the government deliberately acts to change the level and or composition of taxes and or government expenditure
What are the three main goals of the Government when spending the surplus budget
- Repaying debt from the private sector
- Repaying debt from the foreign sector
- Saving to fund future government expenditures or reduce taxation
what is Deflationary Gap
it is a consequence of the cyclical nature of a market economy which refers to a situation where the aggregate demand within an economy is less than the aggregate supply at the full employment level of income, hence resulting in an eventual rise in the rate of unemployment.
inflationary gap
refers to when the aggregate demand within an economy exceeds the aggregate supply at the full employment level of income, hence, resulting in an eventual rise in the price level and inflation rate
what is the crowding out effect
the crowding out effect is a consequence of domestic budget deficit financing which refers to when the government’s increased taxation or borrowed savings from the private sector reduces their ability to spend hence minimising the multiplier effect and disincentivising their expenditure
Types of Taxation
- income taxation
- company taxation
- goods and services taxation
- customs taxations (on imports)
forms of taxation
- proportional taxation - as wages in the economy pays a fixed percentage of their wage to the government
- Progressive taxation - as wages increase the proportion of income which is taxed increases, and as wages decrease taxation proportions decrease
- Regressive taxation - as wages decrease the proportion of taxation is increased, whereas as wages increase the proportion of taxation is decreased.
what are the main types of government expenditures
- social security and welfare (income support, Jobkeeper)
- Infrastructure (roads)
- industry support (subsidies)
what is inflationary expectations
they are qualitative economic indicators which refer to the opinion that households and firms have the future rate inflation - often heavily influenced period, which is then factored into their saving, purchasing and investing decisions.
what is inside lag
it refers to the time it takes recognise that the state of the economy indicates that the need to use counter-cyclincal macroeconomic policy, decide on the appropriate policy response and implement it.
what is outside lag
refers to the time it takes for the policy measure to have its effect on the targeted economic indicators and the level of economic activity
Political constraints
refer to the limitations on government policy actions resulting from the need to tailor polices to win elections, retain popular support, and maintain productive relationships with other nations.
what is macroeconomic stabilisation
is a function of the government and RBA in which fiscal policy, monetary policy and microeconomic reforms are used to influence internal stability, external stability and stable sustainable economic growth, such that the natural volatility of a market economic system may be minimised
what are some microeconomic challenges for Australian
- Reform
- Threat to family life
- Equality of wealth distribution
- Ageing work force
- skills gap
- climate change
- housing affordability
- covid 19