Fiscal Policy Flashcards
Budget 2020/21 = expansionary
- how much revenue
- how much exp
- how much deficit (predicted)
rev = 472.2 b exp = 670.3 b deficit = 197.9 b
what is the purpose of fiscal policy
- decides how revenue will be raised and allocates funds to areas of need
- redistributes income
- influence macroeconomic activity
why is actual budget dif to predicted (factors)
commodity prices
transport costs
business cycle
what are the 5 ways gov finances a deficit
- sell gov bonds: crowding out -priv sectors finds it difficult to attract fund bc gov is competitor for scarce funds
- borrowing from RBA (inflationary)
- gov borrow from overseas (AUD appreciates)
- sell gov assets
- Secondary Effects - crowding in: paying of debts means loaners get original value of bond, increasing their purchasing power
what are auto stabilisers (shock absorbers)
when gov changes nothing about spending (no changes in policy), budget balance will vary over course of business cycle through changes in welfare claims and abilities to pay tax
how does an expansionary policy stance stimulate spending (3)
- reduces income tax to increase purchasing power of households
- cutting business tax to stimulate business spending
- increase gov spending on infrastructure
when does an expansionary policy stance occur
during budget deficit or surplis if revenue falls/exp rises more than previouis year
draw the AE model for expansionary Policy stance
in bOOK
draw the AD/AS model for expansionary Policy stance
POOPOO
how does an contractionary policy stance reduce spending (3)
- increasing tax
- reducing/postponing spending on major projects
- increasing excise taxes on car sales, tobacco and alcohol
draw the AE model for contractionary Policy stance
wee
draw the ADAS model for contractionary Policy stance
POOOOOOOOO
when is a neutral policy stance adopted
if gov thought econ conditions were close to natural rate of full employment or stable inflation
what determines budget balance
BALANCE = STRUCTURAL BALANCE + CYCLICAL BALANCE
- discretionary changes = changes structural balance
2. auto stabilisers = changes cyclical balance
what determines budget stance -
structural balance
structural deficit = expanisionary
structural surplus = contractionary
full employment balance = 0
