Fiscal Policy

Budget Outcomes

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Christian Bien

Learning Objectives

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Surplus
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This is where the government's total revenue exceeds the government's total expenditure. Money from a surplus can be used in the following ways: - Pay off the existing public debt - Put in a special fund such as the Future Fund, Nation Building Funds, Medical Research Future Funds or DisabilityCare Australia Fund - Deposit the money in the Reserve Bank

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Balanced
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This is where the government's total revenue is equal to the government's total expenditure.

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Deficit
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This is where the government's total expenditure exceeds the government's total revenue.

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Importance of a Balanced Budgets Over the Life of a Business Cycle
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Budgets tend to be cyclical in nature to which they are in surplus during periods of high economic activity and a deficit during periods of low economic activity. Governments must be careful to ensure that fiscal spending is neutral over the life of a business cycle, that is the surpluses during periods of high economic activity should match the deficits experienced during periods of low economic activity. If the deficit grows too large and exceeds surpluses in good years, then the economy can be punished with high public debt that compromises the welfare of future Australians and the risk of a downgrade in credit ratings which could discourage private spending in Australia.

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