Fiscal Policy Essay

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Focus question: Assess the role of fiscal policy in the management of Australia’s economy The fiscal policy is the way of which the government can change the level of economic activity by changing its own leakages and injection in the circular flow of income. The two main instruments of the fiscal policy is the amount of government spending, which would be the injection, and the level of taxation, which would be the leakage. The fiscal policy has three possible stances with dealing with the economic activity levels which are the expansionary, contractionary and neutral stance. During an expansionary stance the government will reduce taxation and/or increase government expenditure to stimulate demand, therefore reducing the unemployment rate. While being on a contractionary stance is the opposite of an expansionary stance, increase in taxation and/or decrease in government expenditure to dampen demand leading to lower inflation. By using a budget strategy like the fiscal policy the government is able to influence economic growth therefore leading to internal and external stability. The Fiscal policy is an assuring way in which the government can manage and regulate the economic growth of our nation. The government plans to go into a contractionary stance where there will be a definite reduce in government and rise in taxes to reach the planned surplus. The Australian economy is in a $40 billion deficit in an already contractionary stance, has plans to lower the economy’s growth tho meet the $7 billion needed to meet the planned surplus. The plans to reach the planned surplus has reached to the point of taking out money from the 2012-2013 spending to theoretically be stimulatory to the economy and to help achieve a surplus. The main reasons for desperate attempts to minimise the deficit is to give investors confidence in the Australian economy and Australian

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