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Flashcards in U4 AOS1 Deck (25):

Progressive tax

Occurs where the tax rate increases as personal income levels rise, designed to redistribute income. - gST


Regressive tax.

A tax that increases income inequities, as low income earners tend to be taxed at a higher rate of income compared to higher income earners. Excise on tobacco, - lower income earners smoke more.


Direct tax

Is levied as a proportion of income received by individual and companies.
Personal inform
Company tax


Indirect tax

Is added onto the price of a good or service at the time of sale, making it more expensive.
Excise duties


Headline and underlying cash balance

Headline balance refers to the difference between the total cash value of budgeted receipts minus the budgeted cash value of total outlays, from all sources. Without the removal of items that are once off events, - asset sales.
Underlying represents the headline balance after removing the value of volatile once off events - asset sales.


Automatic stabilisers

Are components of the budget that automatically help smoothen out the booms and recessions in the business cycle. They work by changing the levels of AD and economic activity in the designed way without using discretionary policies.
Boom - tax rev rises, better Eco growth, welfare payments and other outlays decrease, making the budget to become more contractionary (less deficit)
Recession - tax rev decrease from income and company tax due to less business profits so yeh government get less but still the same %. Hand in hand, with a weak economy unemployment rises and therefore welfare payments increase, causing the budget to become expansionary on AD.


Discretionary stabilisers,

Are aspects of tax and outlays in the budget that are deliberately changed via a decision by the treasurer , designed to help smoothen out the business cycle of AD, they can also be implemented to reinforce automatic stabilisers.
Recession -treasures will reduce tax rates, and increase outlays to improve AD. Less tax rates means stronger Eco growth and better employment, helping to smoothen out the BC.
Boom - treasure will increase tax rates, and decrease outlays to slow down AD, higher tax rates causes less spending and therefore a relatively weaker Eco growth, smoothening out the BC.


ToT & budget

Positive TOT - export value is greater then import value .
If we export more imports our exports firms profit levels will increase, a rise to business profits means the government receives more revenue via company taxes. More government revenue causes the budget outcome to be contractionary as the governments inflows (tax via business increase profits) outweighs outflows (Imports) in regards to the TOT.


Initiative & low inflation

Company tax cuts - the company tax cuts will cause stimulate private investment and business profits. A higher profit level will create an incentive to invest in operations and therefore causing strong economical growth. From this increase production capacity will increase which may cause demand inflation. From the high demand business will put prices up as customers will want the g or s regardless, therefore not helping achieve the goal of low inflation.


Initiative and full employment

Youth paths jobs - this budget initiative is designed to create 120,000 new job opportunities over the next 4 years. As is it providing opportunity for employment it will mean that those unemployed will be acquiring the positions available. This means that more people from the labour force will become employed and the participation rate will increase, helping achieve the goal of low unemployment.


Initiative and s&s Eco growth

Company tax cut - this initiative should help stimulate private sector investment (I) and business profits, as a cut to tax rates causes expense value to decrease. This will give businesses the incentive to expand operations( buying new machines) which will over all create a stronger level of Eco growth, helping to achieve the goal.


Initiative & E.S

Trade deals (JAEPA) - the use of fta with strong trading partners like the US, china and Japan will help to put Australian in a better financial position in regards to it external position. These fta reduce tariffs and other trading costs which therefore means what we pay for x amounts of goods will be less due to the trade agreements, therefore increasing the tot and making exporting our goods more price attractive due to relatively lower prices, helping to achieve the goal.


Initiative & distribution of income

Youth paths jobs - as this incentive is designed to create 120,000 employment opportunities over the next 4 years, majority of these will be up taken by those who are unemployed and in the bottom quintiles of income, so from the new employment there income will rise and they will move from the lower quintiles into relatively higher quintiles of income, this helping achieve the goal of income distribution as those in the lower quintiles are brought up via the initiative.


Living standards



Deficit budget financed



Crowding out



Monetary policy + aims

Is an aggregate demand policy operated by the RBA, designed to regulate the business cycle (smoothening), it does this by generally changing the official cash rate which changes cost and availability of credit. ( borrowed money)
Aims are to ensure DES is met but priority of low inflation first.


Monetary policy history



Change to cash rate on E.G and inflation



Changing cash rate



Dirty float.

Occurs in the foreign exchange where the government becomes a buyer or seller of AUD in order to change the exchange rate.
Buying AUD - increase E.R buying Aud means there's more demand, with more demand currency becomes less scares.
Selling AUD - decrease E.R - with less demand for the aud there is downward pressure on the the E.R, causes a weaker AUD.



Comments made in the media, to influence the level of lending by financial firms, in order to reach DES.
In recession - talk spending up
In boom - talk down lending and spending.


Transmission mechanisms



Exchange rate and interest rate

Interest rates ^ causes more investment in Australia from other nations, as there is better returns on investments, therefore more demand = AUD to rise.
Interest rates down. Causes people to look away from investing in Aus and Aus look externally with better returns on investment, so we sell aud, which makes the aud less price attractive and therefore downward pressure in the E.R so aud decrease.


Budgetary policy

Is an aggregate demand measure and relates to changes in the anticipated levels and consumption of government revenues and expenses for the year.