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On February 27th the share market index was at 4650. By mid-March it will be closest to:
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Fiscal Policy
The terms “fiscal policy” and “budgetary policy” are interchangeable
– they mean the same thing. Fiscal policy is implemented by the federal
government each year when they hand down the budget.
Like monetary policy, fiscal policy is a macroeconomic management
tool. This is because when manipulating the budget, the federal
government will make changes that affect the entire Australian economy,
rather than just a small part of it. Despite this, it is worth noting
that any changes within the budget can have consequences for individual
sectors, such as the decision to charge an excise on a good that is
sold within Australia, or the decision to change the tariff structure
for any goods imported into the country.
You will need to be able to understand fiscal policy in two ways.
First, you will need to understand the mechanics of the policy – the
way in which it works. In general, many students find it challenging to
understand this concept, and as such it has been a favourite topic for
the examiners in the past. (Students often have more success with
monetary policy, given that interest rates have been discussed as both
a supply and demand factor during Unit 3. The concept of government
revenues and expenditure is a new one, and as such it can take some
time to absorb this knowledge.) To overcome this, keep in mind that the
federal budget is not unlike a budget that you could write for yourself
– you need to know where your money will come from, and what you will
spend it on. By changing any part of your own budget you will also
change your actions. (“This month I will earn less from my job at the
cinema, but I will gain more by tutoring students in year 11” – as a
result of this change you will spend more time tutoring year 11
students.) Similarly, any change in the federal budget can also change
the actions of those affected.
You will also need to understand the way in which fiscal policy can
affect the Australian economy. During your study of this topic you will
notice that this has changed somewhat in recent years – in the early
1990’s the government adopted a pure Keynesian approach, but since the
election of the Howard government in 1996 fiscal policy has been used
in quite a different manner. It is also important to assess the
effectiveness with which fiscal policy has been able to achieve the
economic goals of the federal government.
Unit 1
Unit 4