BSB113 Final: FISCAL POLICY
Document Summary
Fiscal policy: changes in federal taxes and spending, intending to achieve macro economic policy objectives: discretionary policies (at their discretion, tax cuts / increases, gov. spending, automatic stabilisers. Decrease in taxes as transfer payments wages fall. Increase in taxes as transfer payments wages rise. Occurs when people are fooled by rising nominal values and don"t see that real values may not have changed. Monetary policies" can move more quickly than fiscal policy, as monetary can be changed at any of the rba meetings + smaller number of individuals involved. Decrease in private expenditure + increase in government purchases: gov increases spending by borrowing. Increases interest rates in the loanable funds market. An increase in government purchases may not fully crowd out private expenditures due to the stimulative effect of an increase in government purchases on aggregate demand. Long run a permanent increase in government purchases will result in complete crowding out of private expenditures.
