Lecture%2010

Lecture%2010 - Lecture 10 Chapter 14- Fiscal Policy Lecture...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Lecture 10 - Semester 2 2010 htay 1 Lecture 10 Chapter 14- Fiscal Policy
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 10 - Semester 2 2010 htay 2 Learning Objectives 1. Define fiscal policy. 2. Explain how fiscal policy affects aggregate demand and how the government can use fiscal policy to stabilise the economy. 3. Explain how the multiplier process works with respect to fiscal policy. 4. Discuss the difficulties that can arise in implementing fiscal policy. 5. Explain how the federal budget can serve as an automatic stabiliser. 6. Discuss the long-run effects of fiscal policy.
Background image of page 2
Lecture 10 - Semester 2 2010 htay 3 Baby bonus bring a boom for retail spending The Baby Bonus illustrates the impact government expenditure programs can have on economic activity throughout the economy.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 10 - Semester 2 2010 htay 4 Fiscal Policy: Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives, such as full employment, price stability, and healthy sustainable rates of economic growth. Fiscal Policy
Background image of page 4
Lecture 10 - Semester 2 2010 htay 5 What fiscal policy is and what it isn’t: Automatic stabilisers versus discretionary fiscal policy. Automatic stabilisers: Government spending and taxes that automatically increase or decrease along with the business cycle. Discretionary fiscal policy : when the government is taking actions to change spending or taxes to achieve its objectives. Fiscal Policy
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 10 - Semester 2 2010 htay 6 Automatic stabilisers (Automatic fiscal policy) Automatic stabilisers smooth fluctuations in disposable income over the business cycle, thereby boosting aggregate demand during a recession and dampening aggregate demand during an expansion. For example, Australia has a progressive tax system. That means that as incomes rise, the fraction of tax taken out increases. During an expansion, people move into higher tax brackets, slowing the growth in disposable income and hence consumption. During a recession, as income falls taxes fall by more, meaning that disposable income does not fall by as much as real GDP falls.
Background image of page 6
Lecture 10 - Semester 2 2010 htay 7 Another automatic stabiliser is unemployment benefits. During a recession , output, income and employment are falling, however, income does not fall by as much as it otherwise would because people receive the unemployment benefits (which they can then spend on consumption goods and services). During an economic expansion , employment increases, and so the amount of transfers going to people who are unemployed falls. Automatic stabilisers (Automatic fiscal policy)
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Therefore, as a result of automatic stabilisers: 1. Real GDP fluctuates less over the business cycle than it otherwise would 2. Disposable income varies proportionally less than does real GDP. Automatic stabilisers
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 90

Lecture%2010 - Lecture 10 Chapter 14- Fiscal Policy Lecture...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online