Question 1: Define fiscal policy. How does the government use its expenditure and tax instruments to affect the level of economic activity? Illustrate and explain how fiscal policy can be used to remove a deflationary gap.

Question 2: The Federal Government says it is "on the right track" to put the budget back in the black in 2019-20. What do you understand by this statement? Apply your understanding of the fiscal policy to the real life economic example and explain how the government will return the budget from a deficit to a surplus by 2019-20. How does Australia's budget deficit compare with budget balances of OECD economies? Use secondary sources including graphs and tables to explain.

Question 3: "By the time Treasurer Joe Hockey released the Mid-Year Economic and Fiscal Outlook (MYEFO) in December, the situation looked worse, with no surplus visible in the forward estimates". Why did the situation look worse? What factors contributed to this situation? Justify and explain your answer with government's fiscal policy strategy and economic outlook with graphs and tables. (Information can be found at government's budget website http://www.budget.gov.au/past_budgets.htm )

Question 4: Taking into account the December 2014 economic outlook, comment on the most recent state of the macroeconomic indicators such as inflation, unemployment and government expenditure cuts for 2015. What fiscal stance do you think the current government has taken to bring the budget back to surplus? Explain your answer applying the theory and justify.

Question 5: Discuss the strengths and drawbacks of using fiscal policy to stabilise the economy.