Fiscal Policy
What are the main sources of government income? (2 main sources, extra 100 points for one additional source)
Direct and indirect taxation, revenue from government enterprises, and sale of government assets.
What is the primary role of the Reserve Bank of Australia (RBA)?
To conduct monetary policy, manage inflation, and ensure the stability of the financial system.
What do microeconomic policies target?
Improving aggregate supply, improving efficiency and competitiveness of the economy.
What is meant by the stabilisation of the economic cycle?
Government policies aim to smooth out the fluctuations in economic activity, reducing the severity of booms and busts.
Outline the rationale for environmental management.
Designed to address issues of environmental sustainability. These include the preservation of natural environments, pollution and climate change and managing the use of renewable and non-renewable resources.
What are the components of government expenditure in the federal budget?
Current expenditure, capital expenditure, and transfer payments.
What is the dual mandate of monetary policy? What are the ranges?
Price stability (inflation targeting 2-3%)
Full employment (around 4.25% NAIRU)
How does the production possibility curve relate to microeconomic policies?
Microeconomic policies can shift the production possibility curve outward, indicating an increase in the economy's productive capacity.
What is a limitation of demand management policies?
Time lags, where the effects of policies may take time to be felt in the economy.
Not sustaining economic growth in LR
How does monetary policy contribute to living standards?
By controlling inflation and stabilising the economy, monetary policy helps maintain purchasing power and economic confidence, contributing to higher living standards.
What is the role of automatic stabilisers in fiscal policy?
They are government programs that automatically adjust to changes in the economic cycle to stabilise aggregate demand without additional government intervention.
How does a change in the cash rate affect economic activity?
A decrease in the cash rate lowers interest rates, stimulating borrowing and spending, while an increase in the cash rate raises interest rates, reducing borrowing and spending.
Name a historical aggregate supply policy in Australia (pre-2000s) and describe it.
Deregulation of financial market, deregulation of the labour market, national competition policy...
How do global influences constrain macroeconomic policy? (Hint: trade and/or financial markets)
International economic conditions, such as exchange rates and global demand, can impact the effectiveness of domestic policies.
Impacts Australian policies as Australia has to react to these external influences. E.g. COVID-19 leading to unconventional MP and aggressive FP to minimise impacts
What are automatic stabilsers and why are they important?
Automatic stabilisers are mechanisms that naturally counteract economic fluctuations without additional government intervention, helping to stabilize the economy.
How does discretionary spending influence aggregate demand? Use an example.
Discretionary spending allows the government to deliberately adjust spending levels to either raise or reduce AD. (E.g. JobKeeper, infrastructure spending, increased Medicare investment)
Describe the transmission mechanism of monetary policy. Identify the 4 channels.
It refers to the process through which changes in the cash rate influence aggregate demand and, consequently, economic activity and inflation.
Savings and investment, wealth, cash flow and exchange rate channels
What is the significance of financial industry deregulation to Australia’s economic growth?
It increased efficiency and competitiveness, contributing to higher economic growth and better integration into the global economy.
How can political constraints affect economic policy-making? Give an example.
Political pressures and the electoral cycle can lead to short-term decision-making that may not align with long-term economic objectives.
Using a diagram, explain the impact of education and training programs on the labour market.
Decrease in structural UE, shift NAIRU to the left, resulting in a new SRPC
Explain how an expansionary fiscal policy stance can impact the economy. You must draw the Keynesian income/expenditure model to show your answer.
An expansionary fiscal policy, through increased government spending or tax cuts, increases aggregate demand, leading to higher economic growth and potentially reducing unemployment.
Evaluate the effectiveness of monetary policy in achieving the government's economic objectives.
The effectiveness depends on factors such as time lags, global economic conditions, and the initial level of interest rates; while it is powerful in controlling inflation, it may be less effective in stimulating demand during a recession. It also a blunt instrument with significant impact time (6-18 months)
Analyse a microeconomic policy aimed at improving Australia’s economic growth.
For example - use your reasoning, investment in infrastructure improves productivity by reducing transportation costs, enhancing the efficiency of supply chains, and supporting economic growth.
Explain how macroeconomic policies contribute to internal and external stability.
Macroeconomic policies like fiscal and monetary policies help achieve internal stability by promoting price stability, full employment, and sustainable economic growth. For external stability, these policies aim to maintain a sustainable balance of payments and stable exchange rates, reducing vulnerability to external shocks.
Using an example, explain how Australia achieves its environmental objectives.
Targets, market-based policies, regulations or international agreements. Can achieve based on: decreasing negative externalities through taxes, reducing CO2 emissions through international agreements, targets or regulations