Fiscal Policy

Question 1

federal budget

Answer 1

estimates the Gov’t revenue and spending in a financial year

Question 2

budget surplus

Answer 2

TR > G

Question 3

budget deficit

Answer 3

TR < G

Question 4

Budget Balance

Answer 4

TR = G

Question 5

revenue by proportion

Answer 5

individuals income tax
company and resources tax
sales tax

Question 6

expenditure by proportion

Answer 6

social society and welfare
other purposes
health

Question 7

financing a deficit

Answer 7

selling gov’t bonds
borrowing from the central bank
borrowing from overseas
selling gov’t assets (privatization)

Question 8

crowding out

Answer 8

when the gov’t borrows so much money, the private sector cannot gain access to funds

Question 9

what to do with a surplus

Answer 9

pay of existing debt
hold over for future expenditure
returned to taxpayers as tax cuts

Question 10

intergenerational equity

Answer 10

future generations reaping the benefits that the current generation pays for

Question 11

automatic stabilizers

Answer 11

economic shock absorbers
progressive taxation system
welfare payments

Question 12

contractionary fiscal policy

Answer 12

occurs during a boom 
Aimed at reducing spending 
*increasing income tax
*reducing/postponing major infrastructure projects 
*increasing excise tax

Question 13

expansionary fiscal policy

Answer 13

occurs during a tough 
aimed at increasing spending 
*reduced income tax
*reduced corprate tax
*increased spending on infrastructure

Question 14

strengths

Answer 14

direct (immediate implementation)
effective during a trough
can target specific sectors and AS

Question 15

weaknesses

Answer 15

time lags
is inflexible after being determined (classified as law)
not very useful in a boom
political constraints
unintended impact on private sector (crowing out/in)