MAE 102 Global EconomyAssignment 1Due date: Friday 18 May 2012 by 5pmTotal marks 251. Discuss what...

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MAE 102 Global EconomyAssignment 1Due date: Friday 18 May 2012 by 5pmTotal marks 251. Discuss what is meant by Fiscal Policy. (3 marks)2 What are the instruments of fiscal policy? Evaluate the effectiveness of increasing government spending and tax cuts as a means of stimulating aggregate demand.(6 marks)3. Explain, using the statistics of government expenditure, personal taxation rates and transfer payments , what fiscal policy stance did the XXXXXXXXXXFederal Budget take?(6 marks)4, Evaluate the appropriateness of the government’s fiscal policy stance to the present economic situation within Australia with particular reference to the growth rate, level of inflation and unemployment, the current account deficit and monetary policy stance.(8 marks)Presentation and referencing (2 marks)
	
Document Preview: MAE 102 Global EconomyAssignment 1Due date: Friday 18 May 2012 by 5pmTotal marks 251.	Discuss what is meant by Fiscal Policy.		(3 marks)2	What are the instruments of fiscal policy?  Evaluate the effectiveness of increasing government spending and tax cuts as a means of stimulating aggregate demand.								(6 marks)3.	Explain, using the statistics of government expenditure, personal taxation rates and transfer payments , what fiscal policy stance did the XXXXXXXXXXFederal Budget take?								(6 marks)							4,	Evaluate the appropriateness of the government’s fiscal policy stance to the present economic situation within Australia with particular reference to the growth rate, level of inflation and unemployment, the current account deficit and monetary policy stance.								(8 marks)Presentation and referencing					(2 marks)

Robert · Accepted Answer

Assignment One
1.
Discuss what is meant by Fiscal Policy.
(3 marks)
Fiscal policy refers to the policy of the government that deals with its budget—its spending and its tax revenues. Such a policy is used to affect the macroeconomic condition through changes in Aggregate demand.
2
What are the instruments of fiscal policy?  Evaluate the effectiveness of increasing government spending and tax cuts as a means of stimulating aggregate demand.
There are two main policy instruments-govt spending and Tax rates. Both these part of the government budget defined as the difference between spending and revenues. If spending exceeds revenues then we have a budget deficit. A surplus implies that the government is earning revenues in excess of its spending.
A rise in government spending is an expansionary fiscal policy that impacts directly on the aggregate demand in the economy,. This is because   is apart of the total AD in the economy used to derive the equilibrium DP level by equating AD with AS. A rise in G stimulates , which causes a rise in the GDP via the multiplier process.
A tax cut has the same impact, but indirectly via the change in consumption demand (C). A tax cut increases the disposable income with the consumer, which encourages more consumption. So the effect on AD is indirect.
The effect of a rise in G and a cut in T is same in terms of raising GDP levels, but the quantitative effect is different. Equivalent changes in G and T are different in the amount of rise in GDP they can bring. The multiplier effect is greater in the case of government spending, as compared to a tax cut. Assume that in a close economy the MPC is .5 then a 100 rise in G will cause to rise by 250 as the multiplier value is 2.5. a similar cut of 10 in taxes will cause a rise of 100 only in GDP. Thus the quantity will be different but effect of both policies is same-an increase in GDP level.  
3.
Explain, using the statistics of government expenditure,

MAE 102 Global Economy Assignment 1 Due date: Friday 18 May 2012 by 5pm Total marks 25 1. Discuss what is meant by Fiscal Policy. (3 marks) 2 What are the instruments of fiscal policy? Evaluate the...

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