Economic Policies

Question 1

Define Economic Growth

Answer 1

Economic Growth is an increase in the production of economic goods and services, compared over a period of time

Question 2

Explain Full Employment

Answer 2

Full employment involves full use of all resources, but in reality, refers to full employment of labour

Question 3

Why is High Inflation a Problem?

Answer 3

• Reduces real value of Income + Wealth
• Depreciates Exchange Rate
• Reduces International Competitiveness
• Distorts pattern of resource allocation –> incentives speculation instead of productive capacity

Question 4

Define External Stability

Answer 4

External Stability occurs when export income is sufficient to finance import expenditure as well as meet debt servicing costs

Question 5

Define Fiscal Policy

Answer 5

Fiscal Policy is the government’s macroeconomic instrument which utilises the budget to reallocate resources within the economy with the ultimate aim of achieving economic objectives

Question 6

Define Monetary Policy

Answer 6

Monetary policy consist of the process of drafting, announcing, and implementing the plan of actions taken by the RBA

Question 7

Budget Outcomes (List)

Answer 7

Budget Surplus: (GT)

Question 8

Underlying Outcome

Answer 8

Highlights short-term impacts

Question 9

Headline Outcome

Answer 9

• Rarely Used

- Includes one-off asset purchases

Question 10

Define Fiscal Consolidation

Answer 10

Fiscal consolidation is a policy aimed at reducing government deficits and debt accumulation

Question 11

Differentiate between Discretionary and Non-discretionary spending

Answer 11

Discretionary (structural) changes involve deliberate changes such as infrastructure investment
Non-discretionary (cyclical) are caused by changes in the level of economic activity e.g. progressive tax