Questions & Answers Task 2 – (Fiscal Policy)

Resource Description

Economics Task 2 – Fiscal Policy

Syllabus Outcomes (chapters 12 & 13 of the textbook)

Limitations of the operation of the free market

• Provision of goods and services, public goods, merit goods
• Inequality in the distribution of income – disadvantaged groups, relative poverty
• Externalities and the environment – pollution, climate change
• Fluctuations in economic activity – the business cycle and the adverse effects of booms and recessions
  

Economic functions of the Australian Government

• Reallocation of resources – types of taxes: direct and indirect, types of expenses
• Redistribution of income – progressive, regressive and proportional taxes, social welfare payments
• Stabilisation of economic activity – a brief overview of the stabilising role of monetary and fiscal policies
• Government business enterprises
• Other – including competition and environmental policies
  

Federal Budget

• The budget process
• Types of budgets – surplus, balanced, deficit
• Revenue and expenses

• Discretionary and non-discretionary fiscal policy
• Structural and cyclical components of the budget
• Information and data about this year’s budget
  ? 3 or 4 government initiatives of income distribution
  ? 2 new ways of introducing revenue

Federal Government revenue next financial year is expected to be $486.1 billion.

Total expenses for 2018-19 are expected to be $488.6 billion.

CHANGE IN TAX BRACKET ? how does that affect the redistribution of income? Expand the economy. More regressive than progressive.

Memorise Expenditure number and revenue number, as well as percentages of expenditure.

Limitations of the operation of the free market – Review Questions (ch.12)

1. What is meant by market failure? Discuss the five main types of market failure in a market economy. Why does the government produce and distribute collective goods and services?

2. Distinguish between merit goods and public goods. Why is the government the main provider of these types of goods in the economy?

3. Compare Australia’s distribution of income with other OECD market economies by referring to the data in the table below. What is the difference between absolute and relative poverty? Which groups in Australian society are more likely to experience relative poverty?
4. Why do negative externalities arise in the allocation of some environmental goods? Refer to the table above and explain the divergence between MSC and MPC in your answer.

5. What is the ‘problem of the commons’ in the allocation of environmental resources? Why do governments pursue ecologically sustainable development as a policy objective?

6. Briefly explain how governments have used the policies of privatisation, corporatisation, commercialisation and deregulation to increase the efficiency of PTEs in Australia.

7. Discuss the main economic costs associated with an excessive rate of inflation in booms, and high rates of unemployment during recessions in the Australian business cycle.

Economic functions of the Australian Government – Review Questions (ch.13)

1. What are the economic functions of the Australian government?

2. How can the Australian government reallocate resources in the economy?

3. What are the main criteria used for evaluating a tax system?

4. Distinguish between the tax rate, tax base, direct and indirect taxes, and the impact and incidence of taxation.