Stance of Budgetary Policy

Question 1

The Stance - Definition

Answer 1

The ‘stance’ signals the government’s intention in relation to the level of economic activity. Do they want to speed up or slow down the level of aggregate demand.

Question 2

The Stance of Budgetary Policy

Answer 2

How is the government using the budget as a tool to impact the level of AD and economic activity in Australia.

• Using it to expand AD and activity = expansionary state
• Using it to contract AD and activity = contractionary state

Question 3

Outcomes of Stances

Answer 3

If the budget is contracting (decreasing) AD and the level of economic activity, the budget outcome must be in surplus or moving from deficit to surplus.

Eg. Revenues are growing faster than expenses or expenses are decreasing faster than revenues.

Surplus = Contractionary
____
If the Budget is expanding (increasing) AD and the level of economic activity, then the budget out come is in a deficit or moving from surplus to deficit.

Expenses are growing faster than revenues, or revenues are decreasing faster than expenses.

Deficit = Expansionary

Question 4

Simple Rule for Budget Stances

Answer 4

• surplus = contractionary
• deficit = expansionary

Increased surplus =more expansionary
Decrease surplus = less expansionary
Increased deficit = more contractionary
Decreased deficit = less contractionary