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Is this expansionary or contractionary fiscal policy

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Question - The federal budget deficit in 2015-16 was $39.4 billion, which was 2.4% GDP. In the 2016-17 federal budget announcement, the Treasurer Scott Morrison MP, said that the government planned to reduce the deficit by $2.3 billion to $37.1 billion, which would be 2.2% GDP.

Questions:

1. Is this expansionary or contractionary fiscal policy?

2. Given that (a) the official unemployment rate in 2016 was approx. 5.7%, and (b) there is probably some hidden unemployment and under-employment, which would make the 'unofficial' unemployment rate approx. 11%, what would be a Keynesian macroeconomist's evaluation of the government's budgetary decision?

3. Let's say the government wanted to increase GDP by $30 billion. Let's further say the fiscal multiplier is 1.5. By how much would the government have to increase the budget deficit?

Reference no: EM131996404

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