Yr 11: Fiscal Policy Flashcards

1
Q

What is fiscal policy?

A

The use of taxation and government spending to stabilise the business cycle

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2
Q

What are the 3 budget outcomes?

A

Surplus, balanced, deficit

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3
Q

What are the 3 fiscal stances?

A

Contractionary, neutral, expansionary

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4
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $60m and spending of $65m. What is the government’s budget outcome in Year 2?

A

$5m deficit

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5
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $60m and spending of $65m. What is the government’s fiscal stance in Year 2?

A

Contractionary

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6
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $60m and spending of $60m. What is the government’s budget outcome in Year 2?

A

Balanced budget

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7
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $60m and spending of $60m. What is the government’s fiscal stance in Year 2?

A

Contractionary

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8
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $40m and spending of $60m. What is the government’s budget outcome in Year 2?

A

$20m deficit

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9
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $40m and spending of $60m. What is the government’s fiscal stance in Year 2?

A

Neutral

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10
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $40m and spending of $35m. What is the government’s budget outcome in Year 2?

A

$5m surplus

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11
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $40m and spending of $35m. What is the government’s fiscal stance in Year 2?

A

Contractionary

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12
Q

In Year 1, the government has tax of $50m and spending of $70m. In Year 2, the government has tax of $60m and spending of $85m. What is the government’s fiscal stance in Year 2?

A

Expansionary

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13
Q

How could a government be in a surplus and have an expansionary fiscal stance at the same time?

A

If the government’s surplus decreased from the previous year

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14
Q

What is the difference between discretionary and non-discretionary changes to fiscal policy?

A

Discretionary is a deliberate change to spending or taxation, whereas non-discretionary changes occur automatically with the business cycle

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15
Q

What is an example of a discretionary change to tax?

A

The government raises the percentage paid as tax for income tax or company tax

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16
Q

What is an example of a non-discretionary change to tax?

A

Due to an upturn in the business cycle, individuals earn more and therefore pay more tax

17
Q

What is an example of a discretionary change to government spending?

A

The government spends to build infrastructure, or chooses to increase how much is paid to a person on welfare

18
Q

What is an example of a non-discretionary change to government spending?

A

Due to a downturn in the business cycle, more people are unemployed and apply for welfare payments

19
Q

Why is fiscal policy considered an automatic stabiliser?

A

In an upturn, taxation will rise automatically (because of higher employment and incomes) and gov spending will fall automatically (because of fewer people on JobSeeker). Therefore, the budget automatically adjusts to counteract changes in the business cycle

20
Q

If tax or government spending changes with the business cycle, it is considered…

A

Non-discretionary (or a ‘cyclical component’ of the budget)

21
Q

If tax or government spending changes because of a deliberate government decision rather than a change in the business cycle, it is considered…

A

Discretionary (or a ‘structural component’ of the budget)

22
Q

How does the time it takes to conduct fiscal policy compare with the time it takes to conduct monetary policy?

A

Fiscal policy takes longer to implement because it has to pass through Parliament, whereas monetary policy can be done immediately by the RBA board

23
Q

What was the Australian Government’s budget balance in 2019 (as a percentage of GDP)?

A

0%

24
Q

What was the Australian Government’s budget balance in 2021 (as a percentage of GDP)?

A

-6.5%

25
Q

What was the Australian Government’s budget balance in 2023 (as a percentage of GDP)?

A

0.8%

26
Q

What was the size of the Australian Government’s fiscal stimulus during the pandemic?

A

$291 billion

27
Q

What were 3 discretionary measures taken as part of the Australian Government’s fiscal stimulus in the pandemic?

A

1) $100b on JobKeeper
2) One-off cash payments to welfare recipients
3) Temporarily doubled the rate of JobSeeker

28
Q

What is the difference between JobKeeper and JobSeeker?

A

JobKeeper was a temporary program in the pandemic for firms who were heavily impacted by lockdowns to continue to pay their staff’s wages

JobSeeker is the welfare payment provided to people who are unemployed

29
Q

Why did the Government target welfare recipients with cash payments in the pandemic?

A

Welfare recipients have a lower income so have a higher MPC, increasing the multiplier effect of the initial injection

30
Q

What was a non-discretionary change the Government’s fiscal policy during the pandemic?

A

The number of people on JobSeeker increased by 50% in 2020

31
Q

How well has the Australian Government used fiscal policy to stabilise the business cycle?

A

It worked very well in the pandemic to prevent growth falling and unemployment rising as much as it did in other countries. But it has not been tightened enough since the end of lockdowns, which has contributed to a sharp increase in inflation.

32
Q

What were the main features of the Government’s fiscal policy in 2023?

A
  • A contractionary stance and a budget surplus, but this was entirely due to non-discretionary changes to the budget (mainly high profits for mining firms)
  • Increased subsidies for child care and low-income earners’ electricity bills, in order to directly reduce the effects of inflation
  • Increased JobSeeker by $40 per fortnight