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Economics U4 AOS1
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Economics U4 AOS1
Untitled Flashcards
Study
1
Question
Budgetary (fiscal) policy vs monetary policy
Answer
Federal government uses budgetary policy while RBA uses monetary policy to influence spending and economic activity
2
Question
Sources of Government Revenue
Answer
Direct taxes Indirect taxes Non-tax revenues
3
Question
Types of taxes
Answer
Progressive Regressive Proportional
4
Question
Government spending
Answer
Government current consumption Government investment expenditure
5
Question
Describing Budget outcomes
Answer
Budget surplus Revenue> Outlays Budget deficit Outlays > revenue Budget balance Revenue = Outlays
6
Question
Methods of reporting budget outcomes
Answer
Headline Balance Underlying Cash balance
7
Question
Financing a Deficit
Answer
Federal government sells bonds to: RBA Australian investors Overseas investors
8
Question
Utilising a Surplus
Answer
Save with RBA Reduce Debt Add to investment balances in special savings funds
9
Question
Problems with deficits
Answer
Loss of credit ratings Interest payments take money from providing community services Less able to deal with economic stress Increasing unsustainability and burden on future generations
10
Question
Advantages of surpluses
Answer
Protect Australias credit rating Generates confidence Create fighting fund for bad times allowing government to deal with severe economic crisis or slowdown Can offset deficits and avoid debt which is more sustainable and does not burden future generations
11
Question
Types of Stablisers
Answer
Automatic stablisers (cyclical stablisers) Discretionary stabilisers (structural stablisers)
12
Question
Stance of budgetary policy
Answer
Contractionary stance Neutral stance Expansionary stance
13
Question
Using budget to acheive low and stable inflation
Answer
Increase size of surplus or decrease size of the deficit to increase the contractionary impact Government can implement policies that are designed to restrain AD growth If inflation is supply driven, the government could introduce supply side intiatives such as increasing tax concessions for businesses
14
Question
Using budget to acheive SSEG
Answer
Increase transfer payments (pensions or other welfare payments) Bonus stimulus payments Personal tax cuts to increase disposable income Business tax cuts to stimulate investment spending Increased G1 and G2 spending
15
Question
Using the budget to acheive full employment
Answer
A 'work for the dole' scheme Increasing funding for job placement Funding of the unemployed to start a business Increased spending to training and education Subsidies to businesses to employ certain job seekers
16
Question
Government can reallocate resources through the budget to solve market failures (living standards)
Answer
Funding of the provision of public services like defence The provision of goods with positive externalities in production and consumption Taxes on goods with negative externalities in production and consumption
17
Question
Strengths of budgetary policy
Answer
Automatic stablisers have short lag times for their recognition, implementation and impact Automatic stablisers usually do not create a permanent deficit or need for borrowing Budgetary policy is a flexible instrument, and discretionary policies can be used to target the governments economic or social objectives Works directly to change AD and economic activity Can make both AD and AS side conditons more favourable
18
Question
Weaknesses of budgetary policy
Answer
Discretionary policies can take a long time to implement Lack of flexibility in some parts - difficult to decrease welfare benefits, education and health funding Political constraints can limit budget options Constraints due to conflicts between government economic goals The budget is traditionally implemented annually and thus may not be effective responding to immediate concerns
19
Question
Objectives of RBA
Answer
Stability of the currency (price stability) Maintenance of full employment Increasing economic prosperity and welfare for all Australians (living standards)
20
Question
Role of the RBA
Answer
Controls supply of cash Controls level of borrowing and lending Ensure actual cash rate is closest to target cash rate
21
Question
Monetary policy stances
Answer
Contractionary/restrictive Neutral Expansionary/accomodative
22
Question
Unconventional monetary policy
Answer
Forward guidance
23
Question
Transmission mechanisms
Answer
Savings and investment channel Cash-flow channel Asset prices and wealth channel Exchange rate channel
24
Question
Strengths of monetary policy
Answer
Free from political bias Short implementation lag Powerful influence on the behaviour of consumers, investors, borrowers and lenders Powerful in restraining AD
25
Question
Weaknesses of monetary policy
Answer
Relevant to current economic climate: Unable to target specific aspects of the economy Impact lag is long (can take up to 2 years) Cant directly reduce inflationary pressures generated by supply May be undermined by budgetary policy Not relevant to current economic climate: RBA doesn't have control over interest rates Less effective in stimulating AD in a downturn Less effective when debt is high
Untitled Flashcards
Study
1
Question
AD policies
Answer
Include measures by the RBA to operate monetary policy and deliberate policies as set out by the government through the use of budgetary policies
2
Question
Direct taxes
Answer
A payment to the government levied upon generally earned income/profit e.g personal income tax, company tax
3
Question
Indirect tax
Answer
Taxes imposed on the production or consumption of goods and services and is not dependent on income/profit e.g. GST, cigarette tax
4
Question
Non-taxation revenue
Answer
Receipts from asset sales (e.g government selling medibank) Profits from the operation of government business (e.g Australia post) Interest earned from loans
5
Question
Progressive
Answer
Higher income earners pay a higher marginal tax rate e.g. Personal tax
6
Question
Regressive
Answer
The proportion (%) of income paid in tax rises as income falls e.g. GST
7
Question
Proportional
Answer
The 'rate of tax' stays the same regardless of how much income is earned e.g. Company tax
8
Question
Government current consumption
Answer
Represents payments for goods and services which have immediate economic benefit and no ongoing benefit into the future
9
Question
Government investment expenditure
Answer
Represents purchases of capital assets that will have ongoing benefit into the future
10
Question
Transfer payments
Answer
Transfer of money from the budget to the private sector e.g. welfare payments such as pensions
11
Question
Headline balance
Answer
The difference between the cash outlays and cash revenues from all sources
12
Question
Underlying cash balance (Budget outcome
Answer
Uses figures for the headline balance but subtracts volatile items (aka "Net cash flows from investment in financial assets for policy purposes")
13
Question
Government debt
Answer
What the Australian government has borrowed from other entities
14
Question
Net government debt
Answer
How much the Australian government has borrowed from other entities difference between what Australian government has lent to other entities
15
Question
Fiscal consolidation
Answer
the government aims to acheive a budget surplus on average over the business cycle as their medium term goal
16
Question
Public debt
Answer
Government debt
17
Question
Private debt
Answer
Individual and company debt
18
Question
NFD
Answer
Public + Private debt
19
Question
Energy bill relief
Answer
a discretionary budgetary intiative aimed to reduce the cost of living pressures to eligible households by providing a $300 rebate to households on their energy bills
20
Question
Tax 3 stage cuts
Answer
A discretionary budgetary initiative aimed to reduce the cost of living pressures for eligible individuals who are in lower income brackets by increasing the range of the lower tax brackets and reducing the percentage of their income they need to pay for tax.
21
Question
Limiting capacity on international students
Answer
A discretionary budgetary intiative aimed to limit the number of international students allowed in the country. This limits and thus decreases our export of education.
22
Question
The stablity of the currency/the goal of low inflation
Answer
Targeting a sustained increase in inflation rate of 2-3% (measured by CPI)
23
Question
Maintenance of full employment/goal of full employment
Answer
Achieving an unemployment rate between 4-4.5% (with no cyclical unemployment) and avoids rising inflation and wage growth
24
Question
Increasing economic prosperity and welfare for all Australians
Answer
increasing average living standards
25
Question
Goal of strong sustainable economic growth (SSEG)
Answer
Acheiving a sustained increase in real GDP by 3-3.5% annually, consistent with full employment and without causing excessive inflationary, environemtnal and external pressures.
26
Question
Policy interest rate corridor
Answer
Dependent on if there is a surplus or deficit in banks exchange settlement accounts (ESAs) at the end of the day RBA borrowing rate is 0.25% (25 basis points) above the target cash rate and the RBA deposit rate is 0.10% (10 basis points) below the target cash rate.
27
Question
Open market operations
Answer
RBA can manipulate supply of cash in the cash market by buying and selling financial instruments to financial institutions such as Commonwealth government securities (CGS) Repurchase agreements (repos)
28
Question
Savings and investment channel
Answer
Impacts the cost of credit (borrowing) which affects demand for borrowing which affects AD
29
Question
Cash flow channel
Answer
Impacts the discretionary income of households with existing loans which affects AD
30
Question
Asset prices and wealth channel
Answer
Impacts the demand and value of assets, resulting in the wealth effect which affects indivudal confidence which affects AD