Economics Definitions Unit 4

budgetary policy

the manipulation of the level and composition of federal govt receipts and outlays in order to assist in the achievement of economic and social goals for Australia.

budget surplus (contractionary)

when govt revenue exceeds govt expenses

budget deficit (expansionary)

when govt expenses exceeds govt revenue

balanced budget

when govt revenue equals govt expenses

budget revenues

1.Personal income tax
2.Company tax
3.GST

budget expenditures

1.Social security and welfare
2.Health
3.Education

direct tax

a tax paid directly by economic agents, normally based on the income they earn, e.g. income taxes

indirect tax

a tax paid by economic agents via their purchase of goods or services e.g. the GST

progressive tax

a tax that collects proportionally more from higher income earners compared to lower income earners.

regressive tax

a tax that collects proportionally more from lower income earners.

bracket creep (fiscal drag)

the process of inflation increasing nominal wages and pushing some workers into higher marginal tax brackets

crowding out

the process of budget deficits resulting in higher interest rates and/or exchange rates which then reduces AD and economic growth

crowding in

the process of budget surpluses resulting in lower interest rates and/or exchange rates which then stimulates AD and economic growth.

automatic stabilisers

changes to the budget that occur automatically with changes in the level of economic activity.

discretionary stabilisers

deliberate policy decisions designed to change receipts or outlays in an effort to influence economic activity.

monetary policy

operated by the RBA on behalf of the govt and involves the manipulation of key financial variables in the economy (primarily interest rates) in order to achieve specific economic goals and ultimately improve the living standards and welfare of all Austral

contractionary monetary policy setting

where the target cash rate is high enough to be restraining AD and reducing inflationary pressure. It is usually associated with a policy tightening and occurs when the target cash rate is above 4.25%.

expansionary monetary policy setting

where the target cash rate us low enough to be stimulating AD and increasing inflationary pressure. It is usually associated with a policy loosening and occurs when the target cash rate is below 4.25%.

aggregate supply policies

any govt initiative that is designed to reduce the costs of production and/or improve supply conditions for businesses.

microeconomic reforms

govt reforms that seek to improve the structure and operation of markets in an effort to achieve a more efficient allocation of resources.

environmental policies

policies that are designed to conserve the natural environment and/or minimise long term environmental damage that may be caused by negative externalities.

comparative cost advantage

a theory that a country should those goods and services where it is more efficient at producing, relative to another country. where opportunity cost is the lowest.

allocative efficiency

when resources are allocated in the best way possible in terms of providing the maximum net benefits for Australians.

technical efficiency

when it is not possible to increase output without increasing inputs e.g. productivity at maximum at average costs at minimum.

dynamic efficiency

how quickly an economy can reallocate resources to achieve allocative efficiency.

inter-temporal efficiency

how well resources are allocated over different time periods.