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How has the governments fiscal policy been used to achieve economic objective.

Fiscal policy involves the use of the Australian Governments budget to influence aggregate demand in the

economy and reduce fluctuation in the short term business cycle. Moreover, it can be used to achieve the

governments economic objectives such economic growth, inflation and unemployment. By varying theamount of government spending and revenue, the government can alter the level of aggregate demand

within the economy. Which, in turn will influence its economic objectives ofinfluence economic growth,inflation and full unemployment.

The government can either inhibit can either be expansionary, contractionary and neutral stancedepending on its objective.

An expansionary stance is where the government plans to increase the level of economic activity.

Occurring through either a reduction in taxation revenue and/or an increase in government expenditure,

creating either a smaller surplus, or a larger deficit than the previous year.

An evident through the graph, an expansionary stance will increase consumption as well as overall output

within the economy hence economic activity.

A Contractionary stance, on the other hand plans to decrease the level of economic activity. Occursthrough either an increase in taxation revenue and/or a decrease in government expenditure, creatingeither a smaller deficit or a bigger surplus than in the previous year.

An evident through the graph, a contractionary stance will decrease consumption as well as overall output

within the economy hence economic activity.

Neutral stance, where the government plans to maintain the gap between revenue and spending at

around the same level as the previous year. A neutral fiscal policy should have no effect on the overall level

of economic activity.

Moreover the effects on the stance of fiscal policy influence discretionary and non-discretionary changes.

Discretionary changes are where deliberate changes to fiscal policy, such as reduced spending or changingtaxation rates; hence influence the structural component of the budget outcome. Furthermore non-

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discretionary changes in fiscal policy are influenced by factors other than planned changes to government

revenue and expenditure; thus influence the cyclical component of the budget outcome.

Fiscal policy will influence economic growth as it influences aggregate demand. Given the formula (AD = C

+ I + G + [X M]), where G is government expenditure. HenceContractionary fiscal policy will minus from aggregate demand and dampen economic growth.

Alternatively, an expansionary fiscal stance will add to and stimulate aggregate demand and boosteconomic activity. Moreover, playing as a discretionary change to the overall economy.

Kevin Rudds Fiscal stimulus in 2007 of $72 billion help ed to boost consumer spending in a very unstable

world economy. Moreover, proving very effective as Australia one of the few developed economies to notenter a recession period during the GFC. Moreover, helping to retain over 200,000 domestic jobs.

Furthermore, mainted its range of 3-4% in the 12 months to March 2014 at 3.5%.

Fiscal policy can also play a support role in maintaining low inflation. If the government increases revenueand decreases spending, this reduces demand pressures in the economy and can reduce demand-pull

inflation. For example, the governments plan to achieve budget balance by 2015-16 reflects a strategy ofreducing inflationary pressure that might otherwise emerge in an economy with over two decades of

consecutive growth, and this takes pressure off rising interest rates.It has also increased the competition faced by domestic producers from both overseas and from new

entrants to domestic markets. This makes it more difficult for domestic produces to raise their prices. Inaddition, reforms to the labour market attempt to ensure that wage increases are linked to productivity

improvements. If productivity rises, the economy will be able to afford real wage increases without

inflationary pressures.

Another significant focus of the Australian governments fiscal policy is to achieve full employment.

As illustrated by the graph, full employment or the NAIRU is where employment is at full capacity except

for structural employment, moreover demand-pull inflation is not created. Furthermore, unemployment is

a derived demand from aggregate demand within the economy; hence by influencing the level of

aggregate demand in the economy, fiscal policy can influence by influencing aggregate demand. Given

the formula (AD = C + I + G + [X M]), where G is government expenditure. Hence

Contractionary fiscal policy will minus from aggregate demand and increase unemployment. Alternatively,an expansionary fiscal stance will add to and stimulate aggregate demand and reduce unemployment.Moreover, playing as a discretionary change to the overall economy.

Kevin Rudds Fiscal stimulus in 2007 of $72 billion helped to boost consumer spending in a very unstable

world economy. Moreover, proving very effective as Australia one of the few developed economies to not

enter a recession period during the GFC. Moreover, helping to retain over 200,000 domestic jobs.Furthermore, mainted its range of 3-4% in the 12 months to March 2014 at 3.5%.

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In recent years, successive government have sought to progressively increase the effective tax-free

threshold, in particular through the low-income earners Tax Offset that was increased in the 2009-10

Budget and in the 2012-2013 Budget the tax-free threshold was increase from $6000 to $18200 hence

increasing participation rates.

In achieving these its objectives there will also be conflicts as demonstrated thorough the short run Phillips

curve.

As it indicates that there will always be a trade off between inflation and unemployment. As evident

through the graph depending on the focus of government, in order to achieve one objective the othermust be compromised as they are inversely related.

Furthermore fiscal policy can also have a time lag of between 6-18 months as it take time for its policy topose significant affect on the economy hence placing restriction on its ability to counter short-term policy

needs.Additionally, the constraint of implementing unpopular policies is a major consideration for economic

management. Evident through Kevin Rudds mining tax, political constraints often effect governments

ability to implement long term policies whose benefits are only evident in the long.

Conclusion