Budgetary Policy Stabilisers & AD management policies
Name an automatic stabiliser?
Income Tax
Unemployment Benefits
If the government's budget outcome is in a deficit, what is their stance.
Expansionary
Which of the following is a weakness of budgetary policy: Long Implementation lag, cyclical dominance or long Impact lag.
Long Implementation lag
What is conventional Monetary policy?
The use of the cash rate to influence interest rates
What is the current stance of the Monetary policy?
Contractionary (somewhat restrictive)
What type of stabiliser is the government's initiative to spend $2 billion on new housing.
Discretionary Stabiliser.
If the Budgetary policy becomes less expansionary what is happening to government debt?
The size of government debt is growing. (just slower)
A strength Monetary policy is that it has short implementation lag. Partly because they meet how many times per year?
8
When the RBA communicates the stance and setting ahead of time is called what?
Forward guidance
If the RBA increases the target cash rate are they tightening or loosening?
Tightening
In relation to the business cycle, how does the budgetary policy act? (specifically automatic stabilisers)
Counter-cyclically
How does the government fund a budget outcome deficit?
The sale of government bonds (to Australian & overseas investors and the RBA)
Why does the budgetary policy struggle to reduce levels of AD during peaks/boom phases.
It would make the government unpopular with the public (people like earning money)
If the target cash rate is 4.35%, what is the RBA lending rate?
4.6% (4.35% + 0.25%)
The monetary policy stance is considered neutral when the target cash rate is between…
3 - 3.5%
A tax that collects more from lower income is considered what?
regressive
The difference between the headline outcome and the underlying cash outcome is that the underlying cash outcome excludes what?
Cash flows that don't directly affect the economy.
Because conventional monetary policy can’t target specific sectors or industries, it is sometimes referred to as what?
A 'blunt' tool
How does the RBA increase liquidity in the cash market?
OMO’s (more specifically buying CGSs from banks)
In order for the RBA to adopt an expansionary (accommodative) monetary policy stance, what will they have to do to the supply of money?
Increase the quantity of money (increase liquidity).
The government expenditure (G) component of AD has two parts including current (consumption) expenditure, payments made by the government for goods and services. What is the second part?
Capital (investment) expenditure.
Increased Jobseeker payments indicate that the budget outcome is moving towards what kind of deficit?
Cyclical
Long-term fixed loans mean that the monetary policy experiences what kind of lag?
Long Impact lag
(Because changes in the monetary policy won’t affect the interest rates on fixed loans so it can take a long time for interest rates to change.)
Only Banks with ESAs can trade in the money market. Therefore the money market is considered what kind of market?
Closed market
Name two transmission mechanisms influence AD by changing levels of investment.?
Savings and investment channel, asset price channel and Exchange Rate Channel.