+1 862 207 3288 Economics
Suppose that in 2002, Australia’s GDP was at potential and the government was running a balanced budget. If a slump began and the government changed no laws or policies,
(a) how would this affect government purchases, transfer payments and tax collected (if at all)?
(b) what impact would this have on the budget balance?
(c) what impact would the changes in part a) have on real GDP (compared to if they didn’t occur)?
(d) give some examples of counter-cyclical fiscal policy that might be an appropriate response?
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