'analyse the effects of sustained fiscal surpluses on the australian economy.' (1 Viewer)

[y510920]

'analyse the effects of sustained fiscal surpluses on the australian economy.' (5 marks)

how am i meant to answer this question?
when it says sustained fiscal surpluses, do i just say how it retires the old debt, accumulate the surplus, depositing it with the reserve bank? but i really can't see the link between budget surplus and the australian economy.

or do i answer how it is the contractionary fiscal policy that creates fiscal surplus, and how a contractionary fiscal stance impact the australian economy??

this question comes from independent 2008.
Thanks

 

[cheese_cheese]

This in part led to the GFC and economic down turn as the government was saving all the money and not investing it into schools, roads, hospitals etc.

 

[y510920]

so in this question i am to argue how fiscal surplus is created by contractionary fiscal stance, and how a contractionary fiscal stance lead to economic downturn??? but what about the fiscal surplus itself, is there any impact on the australian economy when the government retires the old debt???

 

[as16]

reduced CAD using the Twin Deficits Hypothesis where the surplus money can be used to pay off overseas debt and can add to national savings through financing future investment

 

[y510920]

reduced CAD using the Twin Deficits Hypothesis where the surplus money can be used to pay off overseas debt and can add to national savings through financing future investment

but i can't see how they impact on the australian economy though. I mean how is a lower CAD going to impact on the economy? particularly when the cad is reduced because of a decrease in public sector debt.....

 

[as16]

CAD is a measure of external stability and if the CAD is reduced, its likely to make Australia look better to foreign investors thus leading to greater investment into Australia