Stabilisation of Economic Activity

• Inflationary Boom

  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