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Unformatted text preview: Fiscal policies can stabilize Australias economy The role of a government is to stabilize economy, or smooth out business cycles, as economic activity in a market economy tends to fluctuate considerably. Economic policy tools that are capable of influencing spending decisions of millions of buyers are government spending and taxes (fiscal policy), and interest rates and money supply (monetary policy). The following analysis shows how the Australian economy has used fiscal policies to smooth out economic fluctuations and reduce its impact on consumers. Fiscal policy uses changes in government spending and/or reduces taxes to influence the level of aggregate demand to impact the general direction of the economy. Governments use infrastructure projects for this purpose, which involve building or repairing roads, bridges, parks and public buildings during recessions especially when the construction industry is particularly depressed. In addition, government spending on transfer payments to people under the Employment Insurance and Welfare programs increase during a recession and thereby provides more support to the level of Aggregate Demand. (Source: http://myweb.liu.edu ) The Rudd government took decisive action to counter the economic imbalance caused by the 2008-2009 global financial crisis that crippled the economies of its trading partners Japan, the United States and others. In October 2008, Prime Minister Kevin Rudd announced a comprehensive $42 billion Nation Building Economic Stimulus Plan to support Australian jobs and businesses that invested in the nations vital infrastructure. It also rolled out tax breaks for small businesses on capital infrastructure....
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- Spring '11