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March 28, 2024, 09:25:15 pm

Author Topic: Stance of Budgetary and Monetary Policy  (Read 1536 times)  Share 

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corza000

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Stance of Budgetary and Monetary Policy
« on: August 13, 2018, 09:21:07 am »
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I just want to make sure I have my stances right as there are a lot of contradictory statements out there:

Budgetary: Mildly contractionary. Due to a decline in the deficit (deficit moving towards a surplus). Other thoughts on this: there has been reference to structural deficit increasing- does this mean that there are just policies within the budget that are expansionary in nature? Has our structural deficit increased?

Monetary: Expansionary. Due to cash rate being 1.5 (lower than 4). Other thoughts on this: is it still expansionary if there have been no cuts in past 2 years?

Chelsea f.c.

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Re: Stance of Budgetary and Monetary Policy
« Reply #1 on: August 13, 2018, 05:15:47 pm »
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Remember its the change in budget that counts as gdp/investment/government/consumption are all flows... yes its contractionary as cutting spending...

Remember rba targets 2-3 inflation rate where the real interest rate is interest rate - inflation rate but interest rates are less than 2 percent??? Very expansionary ;)
Bachelor of Commerce (Honours) Finance - UoM - 2019
Bachelor of Commerce - Economics and Finance - UoM - 2015 - 2018
Diploma in Mathematical Sciences - Statistics and Stochastic Processes - UoM - 2015 - 2018

corza000

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Re: Stance of Budgetary and Monetary Policy
« Reply #2 on: August 19, 2018, 07:43:23 pm »
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Great thanks Chelsea! I guess the only thing I’m unsure about is when it comes to structural deficit as it is said that this is expansionary in last year’s examiners report:


An explanation related to budgetary policy may have included the following points. The 2016–2017 Budget sought to strengthen Australia’s fiscal position as the economy transitions from the benefits of the past mining boom to a platform of broader-based growth. The government stood firm on its goal of achieving a return to budget surplus in the next five years with a projected decline in the size of the budget deficit. Therefore the 2016–2017 Budget was considered to be mildly contractionary given the reduction in the size of the budget deficit compared to the previous year. This is because the federal government was injecting a smaller level of funds into the economy, relative to leakages collected from taxation and other revenue sources compared to the previous year.

While the size of the budget deficit in 2017–2018 was forecast to be smaller than in 2016–2017, which would generally indicate a mildly contractionary budget stance, the size of the structural budget deficit in 2017–2018 has increased thereby indicating that the 2017–2018 Budget is predicted to have a mildly expansionary effect on the economy. The discretionary budget changes, such as the increased expenditure on infrastructure projects, are policies designed to create jobs, which increases aggregate demand and economic growth (and over time improves productive capacity and aggregate supply as well) thereby increasing the willingness and ability of businesses to supply and thus increasing economic growth and job creation.


Chelsea f.c.

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Re: Stance of Budgetary and Monetary Policy
« Reply #3 on: August 20, 2018, 11:51:41 am »
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Ok the much publicized policy of the liberal government is to return the budget (a flow item) to a surplus so as to pay down debt (a stock item) however previous policy commitments may mean that the budget is expansionary despite best efforts increasing deficits and contributing to debt... I dont follow it enough to get into the nitty gritty so maybe ed ask your teacher =)
Bachelor of Commerce (Honours) Finance - UoM - 2019
Bachelor of Commerce - Economics and Finance - UoM - 2015 - 2018
Diploma in Mathematical Sciences - Statistics and Stochastic Processes - UoM - 2015 - 2018

corza000

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Re: Stance of Budgetary and Monetary Policy
« Reply #4 on: August 23, 2018, 08:15:42 am »
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Thanks Chelsea

Chelsea f.c.

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Re: Stance of Budgetary and Monetary Policy
« Reply #5 on: August 24, 2018, 05:57:34 pm »
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Btw you need to get control over your flow and stock items... the budget is a flow and can be in surplus or deficit whilst the structural deficit (debt) can be negative (positive is lending)... if the budget is in surplus I'm paying off debt or lending if it's in deficit I'm increasing debt... so a budget surplus does not mean a structural surplus =)
Bachelor of Commerce (Honours) Finance - UoM - 2019
Bachelor of Commerce - Economics and Finance - UoM - 2015 - 2018
Diploma in Mathematical Sciences - Statistics and Stochastic Processes - UoM - 2015 - 2018

Chelsea f.c.

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Re: Stance of Budgetary and Monetary Policy
« Reply #6 on: August 24, 2018, 08:42:37 pm »
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Sorry missed what you were saying... think interest repayments as to why contractionary but debt increase ;)
Bachelor of Commerce (Honours) Finance - UoM - 2019
Bachelor of Commerce - Economics and Finance - UoM - 2015 - 2018
Diploma in Mathematical Sciences - Statistics and Stochastic Processes - UoM - 2015 - 2018