BSB113 Lecture Notes - Lecture 11: Deflation, Aggregate Demand, Full Employment
Document Summary
The use of federal taxes and expenditures to achieve macroeconomic objectives. Discretionary fiscal policy is policy action that is initiated by parliament usually through the. E. g. the stimulus packages 2008/9; fiscal contraction in early 1990"s. Expansionary fiscal policy: involves increasing government expenditure and/or decreasing taxes. An increase in government expenditure or decrease in taxes will increase aggregate demand (ad). Appropriate when the economy is in recession when unemployment is high. Contractionary fiscal policy: involves decreasing government expenditure and/or increasing taxes. A decrease in government expenditure or an increase in taxes will reduce ad, and hopefully reduce the inflation rate. inflation rate is high. Appropriate when the economy is above full-employment equilibrium and the. Automatic stabilisers are changes in expenditure and revenue that are triggered by changes in the level of economic activity. An increase in unemployment triggers an automatic increase in payments to the unemployed and a fall in income tax revenue.
