test for eco

• Fiscal policy


  A macroeconomic policy that influences resource allocation, redistributes income and reduces fluctuations in the business cycle
• Fiscal policy


  Achieved through manipulating the government's expenditures and taxation collection set out in the Budget
• The Federal budget is the main tool to execute fiscal policy as it manipulates expenditure and revenue amounts to influence economic growth
• On the 14th of May, the Honourable Jim Chalmers MP announced Australia's 2024-25 Federal Budget outlining the fiscal stance of the government for the upcoming year
• This report will focus on explaining the revenues and expenditures, the economic and fiscal strategy of the govt. and the economic outlook for Australia set against the backdrop of the global COVID19 pandemic
• Fiscal policy


  The use of government spending and taxation to influence the economy
• Fiscal policy


  A tool used by the government to manage economic fluctuations and achieve economic objectives such as sustainable growth, high employment, and stable prices
• Primary components of fiscal policy

  • Government Expenditure
  • Taxation
• Government Expenditure


  All government spending on goods and services, public projects, welfare programs, and other public services
• Taxation


  All forms of taxes collected by the government, including income tax, corporate tax, sales tax, and other levies
• By adjusting these components, the government can influence the level of economic activity, aggregate demand, and overall economic health
• Types of fiscal policy

  • Expansionary Policy
  • Contractionary Policy
• Expansionary Policy


  Implemented during economic downturns to stimulate growth and increase aggregate demand (AD)
• Expansionary Policy


  Increase government spending on infrastructure, public services, or reduce taxes to boost disposable income
• Expansionary Policy


  • Positive: Increased economic growth, lower unemployment rates, and heightened economic activity
  • Negative: Potential inflationary pressures due to increased demand
• Fiscal Impact of Expansionary Policy

  Budget deficit as G>T
• Example of expansionary fiscal policy in Australia

  • In response to economic slowdowns, Australia may increase infrastructure spending (e.g., transportation, renewable energy), creating jobs and stimulating consumer spending despite potential deficits
• Contractionary Policy


  Used during periods of inflation or economic overheating to reduce demand and stabilise prices
• Contractionary Policy


  Decrease government spending or increase taxes to lower disposable income and curb spending
• Contractionary Policy


  • Positive: Reduction in inflationary pressures, stabilisation of the economy
  • Negative: Slower economic growth and potential job cuts in non essential sectors
• Fiscal Impact of Contractionary Policy

  A budget surplus as government T>G
• Example of contractionary fiscal policy in Australia


  • To control inflation, Australia might raise taxes or reduce spending, aiming for a balanced budget or surplus to maintain economic stability
• Expansionary fiscal policy


  Increases consumption due to tax cuts or increased disposable income
• Contractionary fiscal policy


  Decreases consumption as taxes rise and disposable income falls, and discourages investment due to higher interest rates
• Australia employs expansionary fiscal policies to boost growth during economic slowdowns, despite potential deficits, and contractionary policies to control inflation, focusing on maintaining economic stability and fiscal sustainability
• These policies impact consumption and investment behaviour through changes in disposable income and borrowing costs
• Budget Surplus


  Government revenues exceed expenditures
• Outcomes of Budget Surplus


  • Debt reduction as surplus funds are used to pay down existing debt
  • Increased savings, providing a buffer for future economic downturns
  • Potential for increased public investment or tax reductions
• Budget Deficit


  Government expenditures exceed revenues
• Outcomes of Budget Deficit


  • Increased borrowing, leading to higher national debt
  • Short-term economic stimulus if deficit spending is used to boost growth
  • Potential long-term fiscal strain if deficits are persistent, leading to higher interest rates and reduced investment
• Types of Tax


  • Progressive Tax
  • Regressive Tax
  • Proportional Tax
• Progressive Tax


  Tax increases as income increases, with higher earners paying a larger percentage of their income in taxes
• Regressive Tax


  Tax decreases as income increases, with lower earners paying a larger percentage of their income in taxes
• Proportional Tax


  Tax rate remains constant regardless of income level, with all earners paying the same percentage of their income in taxes
• How fiscal policy stabilises the economy

  • Countercyclical nature: Adjusted opposite to the business cycle to stabilise fluctuations
  • Impact on Aggregate Demand (AD): Government spending affects AD, influencing production, employment, and consumption
• Labor's 2024-25 Federal Budget aims to strengthen economic resilience and stability amidst global challenges, focusing on strategic fiscal management through targeted expenditures and revenues