Government and RBA tightens monetary policy and budgets for a surplus. This leads to a decrease in aggregate demand and a slower economic growth rate, reducing pressure on prices and inflationary expectations
Recession
RBA and Government loosen monetary policy and budget for a deficit. Leading to higher levels of spending and investment, expansion in economic activity and production, reduction in unemployment
Monetary Policy
Action by RBA to influence level of interest rates and the supply of money
Fiscal Policy
A policy that can influence resource allocation, redistribute income and reduce fluctuations of the business cycle. Its instruments include government spending and taxation and the budget outcome
Multiplier Effect
Each dollar spent/not taxed by the government creates a change that is much greater than one dollar in the national income
