Fiscal Policy Essay

366 WordsMay 14, 20092 Pages
14.6 The impact of recent fiscal policy • Short term impact  eco growth, inflation, u/e and interest rates • Longer term  external stability, Y distribution, environmental outcomes + longer term labour market outcomes worker participation • Fiscal policy changes  less important when economy is exp. stable + sustainable rates of eco growth • Recent yeas  fiscal policy has played a momentous role in influencing longer term economic outcomes  Low profile of fiscal policy  policy shirt  Howard + Rudd govt  medium term objective of maintaining balanced budgets • Long period of sustained eco growth  budget surpluses  reduce govt debt + accumulate surpluses in new investment funds • Monetary Policy  shorter term role of influencing eco activity + keep inflation w/n target range • Main fiscal outcomes (spending, taxation, surpluses)  minor role in influencing the Aust. Eco 14.6.1 Economic Growth • Keynesian eco theory o Expansionary budget  increased spending + tax cuts  accelerate eco growth o Contractionary budget  reduced spending + higher tax rates  dampen eco growth • Govt. gen. adjust fiscal policy to reflect their goals in influencing the level of eco growth  acts as a counterbalance to the level of eco activity o Fiscal policy can increase eco growth in the medium term if it helps to achieve lower interest rates, improve bus. confidence, + free up domestic funds for investment o Reversal crowding out effect  contractionary policies that reduce the budget deficit may result in higher eco act. in the medium-long term  reduce inflationary pressures + lower interest rates  increased consumption + investment  stimulate faster eco growth • Fiscal policy can

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