U4AOS1

Question 1

Role of the RBA #1

Answer 1

The stability of the currency of Australia

Question 2

Role of the RBA #2

Answer 2

The maintenance of full employment in Australia

Question 3

Role of the RBA #3

Answer 3

The economic prosperity and wellfare of the people of Autralia

Question 4

Monetary Policy Stance #1

Answer 4

Neutral:
- Cash rate is at the 3-3.5% and there is internal stability
- the goals are being achieved

Question 5

Monetary Policy Stance #2

Answer 5

Expansionary:
- below 3%
- low enough to stimulate AD and increase inflationary pressures
- loosening monetary policy
- e.g is low
- UNM is high
- Infl is low

Question 6

Monetary Policy Stance #3

Answer 6

Contractionary:
- Target rate above 3.5%
- high enough to be restraining AD
- reducing inflationary pressures
- e.g above 3%
- high inflation
- low unemployment

Question 7

Strength of Cash Rate #1

Answer 7

Implemented independently by the RBA: free from political bias

Question 8

Strength of Cash Rate #2

Answer 8

Good at restraining ADL
- reduces discretionary income of indebted households

Question 9

Weakness of Cash Rate #1

Answer 9

Impact Lag:
- can take up to 2 years to fully impact on economy
- anticipatory policy (rely on forecasts)

Question 10

Weakness of Cash Rate #2

Answer 10

MP/ Cost inflation:
- cannot directly reduce inflationary pressures that are generated by the supply side of the economy

Question 11

Transmission Mechanism

Answer 11

Channels through which MP impacts Aggregate Demand

Question 12

Channel #1

Answer 12

Savings + Investment Channel
- Reward for saving
- cost of borrowing
- impacts decisions to save vs decisions to borrow and spend

Question 13

Channel #2

Answer 13

Cash Flow Channel:
- household/businesses who have existing debts
- most households have variable interest rates based of what RBA does with the cash rate

Question 14

Channel #3

Answer 14

Exchange Rates:
- ‘relative interest rates’
- determines where investors will invest their money (finds the country with highest interest rate)
- net primary income will change as demand for AUD will changed based on foreign investment into AUD

Question 15

Channel #4

Answer 15

Asset prices:
- interest rates have big impact on assets like shares, bonds, and property

Question 16

Budgetary Policy

Answer 16

The manipulation of the level and composition of Federal Government receipts and expenditure in order to assist in its achievement of economic and social goals

Question 17

Automatic Stabilisers

Answer 17

In relation to the budgetary policy, the changes to the budget that occur automatically with changes in the level of economic activities. Also referred to as the cyclical component of the budget

Question 18

Discretionary Stabilisers

Answer 18

In relation to budgetary policy, the deliberate policy decisions to change receipts or outlays in an effort to influence AD or EA

Question 19

Source of Gov Revenue #1

Answer 19

Direct Taxation:
a direct tax is a tax paid by economic agents based on the income they earn
- income tax receipts
- company tax
- superannuation
- fringe benefit

Question 20

Source of Gov Revenue #2

Answer 20

Indirect Taxation:
an indirect tax is a tax paid by an economic agent via their purchases of g/s
- GST
- Excise tax
- customs duty

Question 21

Source of Gov Revenue #3

Answer 21

Non tax revenue:
- interest, dividends, sale of assets

Question 22

Roles of Government

Answer 22

1) create a more efficient allocation of resources
2) more equitable distrubution of income
3) Stabilise the level of EA

Question 23

Type of Taxation #1

Answer 23

Progressive taxation:
- the rate of tax increases as income increases

Question 24

Type of Taxation #2

Answer 24

Proportional Taxation:
- identical amounts from all income earners (rate of tax stays the same)
- e.g company tax is at 20%

Question 25

Type of Taxation #3

Answer 25

Regressive taxation:
- rate of tax decreases as income increases
e.g gst is regressive in nature

Question 26

Budget Stance #1

Answer 26

Deficit - revenue<expenditure

Requires contractionary budget as it increases revenue and decreases outlay

Question 27

Budget Stance #2

Answer 27

Surplus: revenue>expenditure

requires expansionary budget as it decreases revenue and increases outlays