The paper "The Australian Output " is a perfect example of a macro & microeconomics case study. The economy of Australia has always been regarded as one of the strongest and among the fastest-growing around the world. Over the past two decades, the Australian economy has had a decline in unemployment and economic growth. With the economy getting involved in thorough policy and structural reforms the economy has become very strong, flexible, and very nicely integrated with markets all around the world (Garnett, 2010). Fiscal policy refers to an action by the Australian government to spend money or to collect money in the form of taxes with the aim of influencing the level of economic activity.
These policies influence the number of government purchases and taxes thereby controlling the economy (Bhattacharya & Mukherjee, 2013). Fiscal policy, therefore, involves a component of public debt management. The Australian economy is not performing well; there is a moderate decrease in Australian output in the short run because of the decrease in foreign demand for output especially by the Chinese market. The Australian output can be stimulated either by adopting a fiscal policy or by adopting an expansionary monetary policy combined with a tax increase and spending cuts by the government seeking to reduce its budget deficit. There are many merits for stimulating Australian output via fiscal policies.
The Australian government may use fiscal policy to intervene in the economy in the following three crucial ways; firstly, by spending more money and financing this expenditure through borrowing, by collecting more in taxes without increasing expenditure and finally by collecting more in taxes with the aim of increasing spending (Galí & Perotti, 2003).
Fiscal policy is one of the instruments of demand management used by the Australian government. Changes in the level of government expenditure and taxation could be used to eliminate an inflationary or deflationary gap in the economy. Additional government spending should create a multiplier effect on national income, although such public sector spending may have the effect of ‘ crowding out’ private sector investment owing to an increase in interest rates (Gruen & Sayegh, 2005).
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