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Question 1

define budgetary policy

Answer 1

refers to governments use of its budget to achieve specific outcomes in country. it contains details of all income and expenditure of federal government

manipulation of federal government receipts and outlays in order to assist achievement of economic and social objectives of australia

Question 2

boverriding objective of budgetary policy

Answer 2

improve welfare or living standards of all australians and achieve most efficient allocation of nation resource

Question 3

sources of government revenue

Answer 3

personal income tax
company tax
gst

Question 4

Direct vs Indirect tax

Answer 4

direct tax - taxpayer paying directly to authority imposing tax. Taxpayer must bear tax and cannot transfer liability to other entity

indirect tax - charged on g/s. taxpayers pay indirect tax to government via intermediary thus indirectly paid to government.

e.g gst / excise tax

Question 5

progressive / regressive / proportional tax

Answer 5

progressive - tax rate that increase as taxable income increasee.g personal income tax

regressive tax - tax rate that decreases as taxable income increases e.g gst

proportional taxes - A tax rate is the same for all income levels. Everyone pays the same percentage of their income, regardless of how much they earn. company tax

Question 6

all types of payments

Answer 6

Current expenditure
Capital expenditure
Transfer payments

Question 7

define current expenditure

Answer 7

refers to government spending on typically consumable g/s necessary for day-to-day operations of government.

• recurring items of expenditure e.g wages which dont provide benefits in the future

Question 8

define capital expenditure

Answer 8

refers to spending on physical asset / capital items e.g roads, schools

• less frequent types of expenditure which contribute economic benefits in the future

Question 9

define transfer payments

Answer 9

refers to payment made for which no current or future g/s are required in return.

e.g social security benefits , unemployment insurance benefits

Question 10

BUDGET OUTCOMES

Answer 10

balanced budget
receipt = outlays

budget deficit
receipts less than outlays

budget surplus
receipts greater than outlays

Question 11

headline cash balance

Answer 11

refers to total cash received by the government - total cash paid

Question 12

underlying cash balance

Answer 12

refers to headline cash balance excluding future funds earnings and net asset purchases

Question 13

why is underlying cash balance a better indication of position and impact of budgetary policy

Answer 13

• future fund earnings are compulsory reinvested into future fund and not used for general government expenditures

Question 14

how does the government finance a budget deficit

Answer 14

2. selling bonds to australian investors
3. selling bonds to overseas investors causing aud to appreciate lowering net exports harming AD

Question 15

how does the government deal with budget surplus

Answer 15

• reinvest in financial markets e.g dumping money into rba account
• education and investment fund
• health and hospital funds

Question 16

automatic stabilisers / cyclical component

Answer 16

changes of the budget occurring automatically without government intervention and follows changes in levels of economic activity

Question 17

Discretionary stabilizers / structural component

Answer 17

Deliberate policy decisions by government to change receipts or outlays in effort to influence economic activity

Question 18

Different budget outcomes

Answer 18

Deficit - expansionary
Surplus - contractionary
small deficit - less expansionary
bigger deficit - more expansionary
smaller surplus - less contractionary
bigger surplus - more contractionary

Question 19

define fiscal drag

Answer 19

whereby inflation or income growth moves taxpayers into higher tax bracket. effectively increase government tax revenue without increasing tax rates

Question 20

define bracket creep

Answer 20

whereby income growth causes individuals to pay higher income tax rates each year. result of tax system featuring number of tax brackets

Question 21

strength of budgetary policy

Answer 21

• impact lag is relatively short compared to monetary policy
• effective in stimulating ad

Question 22

weakenessses of budgetary policy

Answer 22

• political hurdles prevent polices from being implemented e.g by senate
• less effective at restricting ad compared to monetary policy

Question 23

DEFINE GOAL OF STRONG AND SUSTAINABLE ECONOMIC GROWTH

Answer 23

refers to achieving highest rate of economic growth possible with strong employment without jeopardizing low and unstable inflation.

goal = 3-3.5% real gdp growth
current = 1.3% july

Question 24

DEFINE GOAL OF FULL EMPLOYMENT

Answer 24

refers to achieving highest rate of employment and lowest rate of unemployment possible without jeopardizing low and unstable inflation.

nairu goal = 4-4.5%
current = 4.2%

Question 25

DEFINE GOAL OF LOW AND STABLE INFLATION (STABILITY)

Answer 25

refers to keeping increase in general price (measured by growth in CPI) between 2-3% on average overtime. current 2%

Question 26

current budget outcome

Answer 26

$42.1b

Question 27

what is g1 and what is g2 wehn referring to government investment

Answer 27

g1 = current g2 = capital

Question 28

what does it mean when you have to analyse explain or discuss effectiveness of budgetary policy

Answer 28

explain strength and weaknesses of it overall not a particular example

Question 29

what to not write responding to financing deficit question

Answer 29

use tax cuts as example

Question 30

when to use disposable and discretionary

Answer 30

disposable = after tax discretionary = any other

Question 31

Contemporary initiatives of structural / discretionary stabilisers

Answer 31

Sunshine station rail link to melbourne airport 2 billion Tax cuts up to 268 Energy rebates up to 150$ with 3.5b in spending

Question 32

IMPORTANT THINGS TO INCLUDE IN ANSWER

Answer 32

- RECEIPTS / OUTLAYS - REVENUES AND EXPENDITURE G1 G2 - DEFINE KEY TERMS - ASK URSELF HOW AND WHY - USE STATISTICS

Question 33

Contemporary initiatives of cyclical / automatic stabilisers

Answer 33

government tax revenue -tend to rise during periods of economic growth due to higher incomes and profits, leading to increased tax collections. During recessions, tax revenues typically fall as income and activity decline. welfare payment Welfare payments often increase during economic downturns when unemployment rises, as more individuals qualify for assistance. Conversely, during economic expansions, these payments may decrease.

Question 34

Describe how the financing of a budget deficit can increase pressure on interest rates.

Answer 34

Budget deficits are typically financed via the sale of Commonwealth Government Securities (CGS) to investors (lenders) in financial markets, where these investors will typically be a combination of domestic investors and overseas investors. These budget deficits will tend to increase pressure on interest rates because the need for the government to fund the deficit results in a higher demand for borrowed funds in financial markets which like any market, results in a higher price for the loans/debt (i.e. higher interest rates).

Question 35

Explain the relationship between the underlying budget outcome and public debt. Use the figures contained in Table 1 to support your description.

Answer 35

The existence of budget deficits necessarily leads to an increase in public debt given that the government finances budget deficits via the issue of Commonwealth Government Securities (CGS) in financial markets. Given that the total face value of CGS in existence represents the stock or total value of public debt, continuing budget deficits must lead to a higher value of public debt as ongoing borrowing via the issue of CGS must increase the stock or value of public debt.

Question 36

d. Distinguish a budget deficit from public debt.

Answer 36

A budget deficit occurs when the total value of government expenditure exceeds government revenue over a given period (usually a year) such that the budget outcome is negative. In contrast, public debt refers to the amount of money that is owed to other entities that has resulted from past government borrowings . deficit is a flow variable (e.g. one measuring the flows of money ‘over a period of time’, whereas public debt is a stock variable (e.g. one measuring the value of a variable ‘at a point in tim