econ U4 aos1

Question 1

2 types of budget stabilisers

Answer 1

• automatic or cyclical budget stabilisers
• discretionary or structural budget stabilisers

Question 2

explain automatic/cyclical budget stabilisers and its impact during upswings and slowdowns

Answer 2

definition: unconscious changes built into the budget to spontaneously help regulate AD [work w/o govt intervention]
- speed up economy when economic growth is too slow or vice versa
- promote macroeconomic goals and improve living standards
–> used to smooth out the business cycle
- in expansion tax revenue by govt increases

Question 3

explain discretionary/structural budget stabilisers and its impact during upswings and slowdowns

Answer 3

• deliberate policy decisions announced by the treasure to help stabilise AD
• the bracket creep tax brackets

Question 4

Explain the impact of one federal government initiative on the achievement of macroeconomic stability

Question 5

budgetary stance from 2022-2024

Answer 5

2022/23 - $22Bn surplus (contractionary)
2023/24 - was $9Bn surplus but gov found $6Bn so new surplus is $15Bn (contractionary)
2024/25 $28Bn deficit [forecast] (expansionary)

Question 6

monetary policy

Answer 6

AD management strategy implemented by the RBA. It mainly involves manipulating the actual cash rate of interest, thereby impacting the cost of cash more broadly. By changing interest rates counter cyclically the RBA can help stabilise the level of economic activity & improvement the achievement of

Question 7

roles of reserve bank

Answer 7

• implement monetary policy
• issuing notes & coins; currency is a call on the reserve bank
• banker to the fed govt
• banker to the commercial banks

Question 8

china’s declining economy is bad for Australia

Question 9

what are the objectives of monetary policy

Answer 9

• the stability of the currency of Australia
  –> This objective is interpreted to mean low and stable inflation. Inflation is an increase in the general level of prices of the goods and services that
  households buy (see Explainer: Inflation and its Measurement). Low and stable inflation preserves the value, or purchasing power, of money over time.
• maintenance of full employment in Australia
  –> This objective relates to the Reserve Bank promoting an environment that supports full employment. Full employment occurs when there are enough jobs for people who are available and want to work. Even at full employment, some people might be unemployed because of
  skill mismatches or as they move between jobs
• economic prosperity and welfare of ppl of Australia
  –> This objective relates to the Reserve Bank promoting an environment that supports the economic prosperity and welfare of the Australian people. This is primarily achieved by maintaining a stable macroeconomic environment, but it also means the Reserve Bank Board considers other factors, such as financial stability, when setting monetary policy.

Question 10

interest

Answer 10

the cost of borrowing money or the reward for saving money

Answer 11

overnight cash rate target - 4.35%

Question 12

sources of gov revenue

Answer 12

Direct tax: 70% of all govt budget
- income
- corporate
- medicare levy
Indirect tax: 24% of all govt budget
- GST
- Excise taxes
- Tariffs

sale of gov assets or revenue from gov businesses

Question 13

Types of taxes

Answer 13

progressive taxes
- personal income tax

regressive taxes
- GST

proportional taxes
- business tax

Question 14

aim of budgetary policy

Answer 14

to increase the wellbeing of Australians & better achieve our key domestic macroeconomic goals

Question 15

budget/fiscal policy

Answer 15

an AD strategy that is directed by the treasurer & involves estimates of changes in the level & composition of budget receipts [revenue] and budget outlays [expenses] for the year ahead

Question 16

does NOT need to be exactly on the cash rate target but should be 25 basis points up or down from target

Question 17

exchange settlement account [ESA][monetary policy]

Answer 17

an account that the commercial banks hold with the RBA, to assure the RBA that the commercial banks can meet their ‘obligations’.

Payments from one bank to another are directed through the ESA. This allows for oversight by the RBA

Question 18

budget receipts [revenues]
budget outlays [expenses]

Question 19

budget outcome & 3 kinds

Answer 19

reflects the diff in value b/w the govt’s receipts and govt’ outlays for the year
- budget surplus
- budget balance
- budget deficit

Question 20

how a govt budget is financed

Answer 20

1. borrow from o/s
   by selling Australian govt bonds to foreign investors. Bc in a budget deficit the international rates are lower, making repayments cheaper. however, borrowing o/s adds to NFD which may erode our international credit rating and weaken the current acc balance

Question 21

open market operations [monetary policy]

Answer 21

involves the RBA …. STMM they can sell govt bonds and thereby reduce the cash in the market [give piece of paper and take money out of market] or purchase govt bonds & therefore, inject cash into the market.

Question 22

Due to current circumstances of

Answer 22

contractionary = bc the govt takes more money out of the economy than it is putting in the surplus will reduce AD and potentially slow economic activity maintain or increase tax rates reducing disposable income

expansionary =

Question 23

factors influencing the stance

Answer 23

• inflation
• spending & confidence
• labour market conditions
• budgetary stance
• international developments

Answer 24

headline inflation: 3.8% p.a from 3.6%
underlying: 3.9% from 4%
services: rent, insurance
goods: clothing, footwear, tobacco, alcohol, fruit+veg

Answer 25

exchange rate, fell against USD why: - increase in our exports [eventually] as imports decrease - expectation of hold or fall in interest rates next week - decreased yield, decreased demand, decreased demand for AUD, decreased exchange rate

Question 26

macroeconomic goals

Answer 27

1. Your position on ? 2. Primary argument, ref domestic economic stability and inflation [all data]