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5.7 During the mid-2000s, the Australian federal government operated successive budget surpluses that were approximately 1 per cent of GDP Does this mean that it was operating contractionary fiscal policy during this time? Discuss.

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normally an economy is in surplus when its revenue exceeds its total expenditure in the economy. to increase surplus most of the time governments adopt contractionary fiscal policy, here they decrease government expenditure and raises tax and in both the way the revenue of the government increases.but here in case of australia the case is not the same. the mid- 2000s surplus of the government was not due to contractionary fiscal policy. rather it was due to automatic stabiliser. however government at that time also reduced personal income tax to eliminate the booming effect of automatic stabiliser as asupply side policy. so the surplus was not due to contractionary fiscal policy.

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