Macroeconomics - L16 Budgetary Policy

Question 1

What are the government’s 3 goals for achieving domestic stability?

Answer 1

1. SSEG (3-3.5%)
2. Full employment (U/E between 4-4.5%
3. Low inflation (2-3%)

Question 2

What is budgetary policy?

Answer 2

The manipulation of government income (revenue) and outlays (expenditure) to assist the achievement of the government’s economic and social goals.

Question 3

What is the Personal Income Tax Plan policy?
ie. Nature of the policy.

Answer 3

A specific budgetary policy that involves reducing tax rates applied to workers’ incomes and providing immediate tax relief to low and middle-income workers.

Question 4

How is the policy intended to ‘operate’ in the economy?

Answer 4

Consumers will have higher disposable incomes and increased purchasing power.

This will encourage spending on G & S, increasing AD and private consumption expenditure.

Producers will respond by increasing production, leading to higher levels of economic activity and growth.

Question 5

What impact will this policy have on the goal of full employment?
ie. Link

Answer 5

Producers will need more workers as a result of the increase in AD for G & S.

This will contribute to the achievement of the goal of full employment (u/e between 4-4.5%) by decreasing unemployment.

Question 6

What is the Homebuilder Scheme policy?
ie. Nature of the policy.

Answer 6

The Homebuilder Scheme is a nationwide policy aimed to boost the construction sector by providing eligible applicants with a $25k grant to help build a new home or renovate an existing home.

Question 7

How is the policy intended to ‘operate’ in the economy?

Answer 7

The scheme will lead to the construction of more new homes as well as more renovations which will boost work for construction companies.

This will lead to more tradies being employed and earning a disposable income, which is likely to result in an increase in spending on items such as new clothing and furniture, increasing private consumption expenditure and aggregate demand.

Producers in other industries will respond to the increased demand by increasing levels of production, thereby increasing levels of economic activity and growth.

Question 8

What impact will this policy have on the goal of full employment?
ie. Link

Answer 8

Producers in other industries will respond to the increase in AD by increasing levels of production, which will require more workers, leading to more jobs being created and a decrease in unemployment.

This will assist the government to achieve its goal of full employment, where unemployment is between 4 and 4.5%