Fiscal policy

What is fiscal policy?

Fiscal policy refers to the use of Commonwealth Government spending and taxation to affect the level of economic activity and achieve specific economic and social objectives.

What are the main economic objectives of the government?

The main economic objectives include economic growth, full employment, and price stability.

Who is known for the Keynesian Revolution in fiscal policy?

John Maynard Keynes.

What did Keynes propose related to fiscal policy during economic contractions?

He proposed that government could stimulate the economy with increased government spending and/or tax cuts.

How much do government purchases of goods and services account for in government spending?

Government purchases account for around 60% of government spending.

What is one effect of increasing government transfer payments?

An increase in transfer payments will increase household disposable income and consumption expenditure, thus raising real GDP.

What are the three main categories of government taxation?

Personal income tax, company tax, and consumption taxes.

What does full employment mean?

Full employment refers to the situation where everyone who is willing and able to work can find a job.

What is the natural rate of unemployment in Australia?

The natural rate of unemployment in Australia is estimated to be around 4%.

What does price stability refer to?

Price stability means maintaining a low and stable rate of inflation over time.

What is the target inflation rate for consumer inflation?

The target inflation rate is between 2-3% on average over the business cycle.

What is a budget deficit?

A budget deficit occurs when government outlays exceed revenue (G > T).

What are automatic stabilisers in fiscal policy?

Automatic stabilisers refer to changes in government transfer payments and tax revenue that occur automatically with changes in the business cycle.

What is an expansionary fiscal policy stance?

An expansionary fiscal policy stance means the government plans to decrease its budget balance by increasing spending and/or reducing taxes.

What does contractionary fiscal policy aim to do?

Contractionary fiscal policy aims to decrease the budget balance by decreasing government spending and/or increasing taxes.

Name one strength of fiscal policy.

Fiscal policy can be implemented quickly to affect aggregate demand.

What is the primary disadvantage of discretionary fiscal policy?

Discretionary fiscal policy has a relatively long inside lag due to the need for parliamentary debate and voting.

What is crowding out in the context of fiscal policy?

Crowding out refers to the situation where increased government spending leads to a decrease in private consumption and investment.

How can a government finance a budget deficit?

A government can finance a budget deficit through borrowing, selling government bonds, or selling government assets.

What impacts does a budget surplus have on public finances?

A budget surplus can be used to pay off government debt, fund future expenditure, or return to taxpayers.

What is a progressive tax system?

A progressive tax system means that higher income groups pay a higher proportion of tax than lower income groups.

What is the Gini coefficient?

The Gini coefficient measures the degree of income inequality within a population.

What role does government investment play in fiscal policy?

Government investment increases both aggregate demand and aggregate supply by adding to the nation's capital stock.

What happens to government spending during economic contractions?

During economic contractions, government transfer payments increase automatically, which helps stabilize the economy.

What are the two components of fiscal policy?

Discretionary fiscal policy and automatic stabilisers.