Fluctuations in External Stability
Economics PAT
“Analyse the causes and effects of fluctuations in Australia’s external stability”.
Achieving external stability is an important objective of economic policy, achieving this stability ensures that imbalances in Australia’s economic relationships with other economies do not hinder achieving domestic economic policy goals such as lower rate of unemployment, higher rate of growth and lower inflation. There are three main factors that effect external stability the deficit on the current account (CAD), net foreign liabilities and the Australian dollar. Australia’s experienced times when overseas investors decided that the economy’s external position was unstable, and when investors like such decide to withdraw their investment from the Australian economy it creates a strain on the economy which can lead to a depreciation of the currency, higher interest rates and slower economic growth.
The best way of assessing a country’s external stability is to look at the sustainability of its external accounts, in particular the country’s foreign liabilities and the CAD. Since the 1980’s Australia has persistently had a large deficit on the current account, Australia has paid out more for goods, services, income and transfer payments than it has received from overseas. As a country it is irregular to have a CAD, usually countries aim for their economy’s to generate surpluses. The CAD as a percentage of GDP is the best measure of trends in the current account over time, rather then the size of the deficit in dollar terms. In the 1970’s GDP was calculated as a percentage and the CAD averaged at 1.1%, in the 1980’s its average was 4.3%, this increase was viewed as a trade problem, and believed it resulted because of an imbalance of goods and services. This large increase on the deficit lead to major structural reforms to restore the competitiveness of the economy. Instead of being seen as a trade gap it’s now perceived to be a savings and investment gap that
“Analyse the causes and effects of fluctuations in Australia’s external stability”.
Achieving external stability is an important objective of economic policy, achieving this stability ensures that imbalances in Australia’s economic relationships with other economies do not hinder achieving domestic economic policy goals such as lower rate of unemployment, higher rate of growth and lower inflation. There are three main factors that effect external stability the deficit on the current account (CAD), net foreign liabilities and the Australian dollar. Australia’s experienced times when overseas investors decided that the economy’s external position was unstable, and when investors like such decide to withdraw their investment from the Australian economy it creates a strain on the economy which can lead to a depreciation of the currency, higher interest rates and slower economic growth.
The best way of assessing a country’s external stability is to look at the sustainability of its external accounts, in particular the country’s foreign liabilities and the CAD. Since the 1980’s Australia has persistently had a large deficit on the current account, Australia has paid out more for goods, services, income and transfer payments than it has received from overseas. As a country it is irregular to have a CAD, usually countries aim for their economy’s to generate surpluses. The CAD as a percentage of GDP is the best measure of trends in the current account over time, rather then the size of the deficit in dollar terms. In the 1970’s GDP was calculated as a percentage and the CAD averaged at 1.1%, in the 1980’s its average was 4.3%, this increase was viewed as a trade problem, and believed it resulted because of an imbalance of goods and services. This large increase on the deficit lead to major structural reforms to restore the competitiveness of the economy. Instead of being seen as a trade gap it’s now perceived to be a savings and investment gap that