Analyse the role and implementation of monetary and fiscal policies as tools of macroeconomic management to manage the Australian economy through the current global economic crisis.
How does the government use fiscal and monetary policy to get Australia through the current global financial crisis
Fiscal policy is implemented through the use of a particular group of variables known as fiscal instruments. The instruments of fiscal policy are the expenditure and revenue variables, which are under the direct control of the government. In the real world, rates of taxation, rates of transfer payments and levels of government expenditure of various types represent them. -
The spending and revenue plans of the government for the fiscal period are announced through the government budget. The budget brings the revenues and spending sides of the government’s finances together and shows whether these finances are in surplus, deficit or balance for the year. The budget balance is measured by the difference between total government revenue and expenditure. The three possible outcomes for the budget are: o
Revenue exceeds expenditure and the budget balance is positive o
Revenue equals expenditure and the budget balance is zero o
Expenditure exceeds revenue and the budget balance is negative
The Budget and the Stabalisation of Economic Growth
Fiscal policy, along with monetary policy, provide the main macroeconomic policy tools the government uses to keep the economy growing at a sustainable pace, with low inflation and low unemployment. They are also the policy tools the government can use to try and shorten recessions and prevent booms in economic activity from becoming excessive. This has traditionally been termed stabilisation policy. -
It is the presence and impact of automatic stabilisers (taxes and transfer payments in particular), which enable fiscal policy to exert a stabilizing force on...
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