Monetary and Budgetary policy Flashcards
(33 cards)
What is budgetary policy
budgetary policy is the anticipated changes in government expenditures and revenues over the coming year. It is decided once per year in may however the initiatives are not always introduced right away
what is a progressive tax
a progressive tax is a tax in which the amount that can be taxed increases as the income of the person increases as well. An example of this is income tax
what is a regressive tax
a regressive tax is a tax in which all people are taxed at an equal rate regardless of how much they make or are worth. This means a heavier tax burden is placed on lower income earners. An example of this type of tax is the GST
What is a tax base
a tax base is how widely a tax is distributed amount the population (i.e. how many people are actually affected by this tax). Eg the luxury car tax has a far lower tax base than the GST.
what is a tax mix
the tax mix is the percentage combination of indirect, direct and non tax revenue that makes up all current government revenue
what is the difference between direct and indirect taxes
direct taxes are ones which are taken directly from the consumer and given to the government. Indirect taxes on the other hand are collected by a third party and then passed on to the government
what are the three key principles of taxation and tax reform
1) simplicity
2) fairness
3) efficiency
what is the headline budget balance
the headline budget balance is the balance that includes all volatile items that are included in the budget balance and usually makes the budget appear far nicer than it really is. Due to this it is pretty useless in the measure of the balance
what is the underlying/fiscal budget balance
the underlying balance is the one that removes all volatile items which would normally be included in the budget calculations. This gives a more realistic representation of the state of the budget
what is the largest revenue item in Australia
income tax
what is the largest expenditure item in Australia
social security
What is an automatic stabiliser
an automatic stabiliser is a stabiliser that is built into the budget so that it acts without intervention by the government. They act in a counter cynical way to smooth out the business cycle. An example is that social security payments naturally fall during a boom moving the economy towards a contractionary surplus
what is a discretionary stabiliser
a discretionary stabiliser is any stabiliser that is introduced by the government in each year budget that is designed to smooth the business cycle when the automatic stabilisers fail and usually has a much more drastic effect. An example is cuts to company taxes
What effect does Terms Of Trade have on on the budget outcome
the terms of trade affects business profits. With a lower terms of trade businesses make less so the government makes less money from collecting business tax. This decreases revenue
How does the budget affect economic growth
the budget affects economic growth based on which stance the government is currently taking on the budget. If the budget is contractionary then economic growth is negatively affected (however this contraction is usually in response to extremely high growth in the first place). The opposite is true for an expansionary stance.
how does the budget affect inflation rate
the budget affects the inflation rate in a similar way to how it affects economic growth. When the government takes a contractionary budgetary stance then it tends to put downwards pressure on our inflation rate and the reverse is true for an expansionary stance
how does the budget affect full employment
full employment is not the main focus of budgetary policy except for specified policies such as the youth unemployment scheme however the governments stances in response to inflation and economic affects the goal employment. Higher growth tends to lead to higher full employment
how does the budget affect external stability
the budget affects external stability by the level of total external government debt. If we have high external debt then we tend to worsen external stability. Due to this a contractionary stance tends to be better for external stability
how does the budget affect equity
equity is directly linked to full employment so a stance that supports full employment also helps with the goal of equity
economic policies that affect each goal
refer to the sheet printed out
how can a budget deficit be funded
a budget deficit can be funded in three ways
1) selling government bonds overseas (i.e. increasing net foreign debt in order to fund debt)
2) borrow from the RBA (i.e. essentially asking the RBA to print more money)
3) borrowing from domestic markets (causes crowding out where there is less money floating around to use for business investment)
What is monetary policy
monetary policy is the fine tuning of the budgetary that is controlled by the RBA and used once per month. It involves the manipulation of money within certain markets in order to have wide effects on interest and exchange rates
what are the aims of monetary policy
the main aim of monetary policy is to maintain inflation at a stable rate within the 2-3% goal band. If this goal is achieved and easy to maintain then monetary policy can also be used to fine tune economic growth and full employment however this is not its main aim
what is the recent trends in monetary policy
over the past few years post GFC recovery period the RBA has taken an expansionary stance in response to the slowing in the mining sector continuously lowering interest rates in an effort to stimulate growth