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MACROECONOMIC Contents Fiscal Policy 3 Instruments of fiscal policy and the effectiveness of the different measures in stimulating aggregate demand 3 Fiscal policy stance 2012 (Australia) 5 Appropriateness of the fiscal policy stance 6 References 8 Fiscal Policy The term fiscal policy refers to the use of the revenue of the government as well as the spending for the welfare of the economy…
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Download file to see previous pages... 2). The objectives of economic growth, stability in prices and the desired level of employment can be attained through fiscal policies. Instruments of fiscal policy and the effectiveness of the different measures in stimulating aggregate demand There are three main instruments of fiscal policy as discussed below. They are public debts, taxation and public spending. The instruments can be sued by the concerned authorities to achieve the desired level of production, national income as well as consumption. The term aggregate demand refers to the total expenditure made by the households, government and businesses on the goods and services that are produced domestically. It describes the behaviour of the buyers in response to changes in the policy implementations. If the level on inflation rises, the purchasing power of the consumers fall and therefore the aggregate demand curve is downward sloping (Auerbach, 2005, p. 3). This is described in the diagram below. Increase in government spending: The increase in the expenditure from the part of the government is likely to shift the aggregate demand curve to the right. The diagram below will provide the realistic picture. The increase in government spending means more money or disposable income on the hands of the consumers. The level of employment will take the upward rising curve and therefore it is natural that the aggregate demand curve will budge to the right as the overall level of demand within the economy will rise. Increase in tax cuts: The increase in tax cuts is expected to have the same effect as the cut will stimulate investment spending and the level of demand exiting in the economy will rise. Therefore the aggregate demand curve will budge to the right in this case as well. Fiscal policy stance 2012 (Australia) The fiscal deficit of Australia reached at the level of 44.7 billion dollars during the year 2012. The fiscal stance that the government adopted during the federal budget during that year was mostly emphasized upon reducing the government expenditure. There were announcements of several new taxes namely minerals resource rent tax and the carbon price. There were some additional to fund reconstruction after natural disasters. The following diagram will show the government spending for the 2012 for Australia. The following table shows the personal tax rates for the country in 2012. Appropriateness of the fiscal policy stance Variation in outcomes can be witnessed among the different industries. The high commodity prices boosted the national income while the terms of trade reached at the record level in that year. On the other hand the conditions remained subdued in the fields of investments as well as in the arena of household spending (WACE Revision Centre, 2013, p. 12). The rate of unemployment has remained at the level of 5.25% although there was slight improvement in the unemployment conditions in the middle periods of 2011. The expenditures made by the consumers have remained at the moderate level with no surprising trends. The ratio of net wealth to disposable income has fallen in the recent years. The business investment rose sharply till the second half which drove in capital imports into the country and the impact of the capital imports had significant effects on the current account balance of the country. The demand stimulus of the country contracted ...Download file to see next pagesRead More
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