KK17 - Effect of automatic and discretionary changes in the budget on the budget outcome and public debt

Question 1

Expansionary Automatic Stabalisers

Answer 1

Expansionary automatic stabalisers like welfare outlays countercyclically boost AD and economic activity
-Can lead to budget deficits, more public debt

Question 2

Contractionary Automatic Stabalisers

Answer 2

-Contractionary automatic stabalisers like the progressive tax system will countercyclically reduce AD and economic activity
-Can lead to budget surplus, paying down public debt

Question 3

Expansionary Discretionary Stabalisers

Answer 3

-Reductions in tax rates
-Increase in welfare payments (40 dollar jobseeker, 1.2 mil people with childcare)
-Can lead to budget deficits, increase in public debt
-Can be hard to get rid of (political challenges)

Question 4

Contractionary Discretionary Stablisers

Answer 4

Increase in tax rates (tobacco excise)
-Decrease in welfare payments
-Causes budget surpluses, reduction in public debt

Question 5

Structural budget deficit

Answer 5

Intentional government spending that exceeds revenues throughout the business cycle