QUESTION

“An essay on any current economic news”

The purpose of this essay is to encourage you to think carefully about subject content, relate this to actual events or issues as reported in any of the various media such as newspaper,journal articles, magazine andwebsite. A printed copy of your selected article must be firmly attached to your essay.

  Discuss and relate the article selected to some theory, model data or idea introduced from any ECON104 topics.

SOLUTION

1. Introduction

As the global economy tries to recover from the subprime financial crisis that struck in September’2008 the Australian economy has also not been insulated from the impact of the crisis that emerged in the US. The Australian economy fare much better than some of the global economies in 2009. As China is a major trading partner of Australia, and proposed a considerable high growth for it also impacted the commodity demand in Australia and insulated it from the recession.

The RBA has played a major role ensuring protection for the Australian economy and maintains its upward path; In fact the RBA was the first to increase the interest rates in an attempt to tighten liquidity to safeguard against the financial crisis. In October 2009 the RBA increased the interest rate by 25 base points to 3.25%. Now after successfully emerging from the financial strain from 2008-2011 and the growth expectations of the economy the Australian market and industry are waiting for a rate cut by the RBA in 2012.

(www.qfinance.com- accessed on 24/4/2012)

2. Wait for the Rate Cut

With the economic growth lower than the expected performance, the RBA has hinted at another rate cut by May 1^st 2012. The rate cut would be proposed on the ground of soft inflation figures, with the lower economic growth in the first quarter of 2012 and to lick start the economic activity in the country the rate cut proposal is being effectively considered. The rate cut is also being pushed forward by the Australian Prime Minister Julia Gillard in light to pull back the economy on track , however many researchers and analysts highlight the failure the economic policy of the government owning to poor economic performance and the proposal for the rate cut.(www.theaustralian.com.au- accessed on 24/4/2012).

The global financial crisis did have an impact on the Australian economy with , the stock market losses that affected consumer income in 2009-2010.This was accompanied with a highest ever fiscal deficit for the Australian government at 4.7% in 2009-2010 accompanied with another large fiscal deficit of 3.7% in 2010-2011. Therefore the crisis curtailed the growth of the Australian economy and forced the RBA to tighten the monetary policy to ensure tight liquidity and insulation from the global impact of the financial crisis. The RBA responded to the situation by increasing the interest rates 25 base points to 3.25% in 2009 and subsequently to 4 % in 2010. The Australian economy has been the best performer in the global financial crisis with the government successfully being able to high rates in inflations which were evident in some of the other countries as the economy emerged from the impact of the tightened liquidity the growth forecasts were expected to be better for the economy in 2011.  The government forecast the 2011 economic growth at 4% with mining and farms being the drivers of the economic growth in 2011. But however lower levels were growth were eventually achieved at the rate of 3.1%. The lower economic growth has raised questions on the economic policies followed by the Australian government (www.Qfinance.com and www. budget.gov.au – accessed on 24/4/2012). The lower growth rate may be attributed to the 2 faced nature of the Australian economy as the Australian mining sector continues to boom with Australia accounting for the world’s 60% of the metal ore exports globally and on the other high rated on unemployment of 5.1% prevalent in the economy. This has caused the Australian government to evaluate their economic policy and account for several factors before taking a decision for the expansion and the growth of the Australian economy (www.bbcnews.co.uk – accessed on 24/4/2012).

The rate cut under consideration is being proposed with the expectation that it would boost economic growth but the real benefits and performance can only be analysed after the cut is imposed and the subsequent economic performance.

3. Advantages of the Proposed Rate Cut

The Australian economy continues to face a lack of demand as evident from the consumer price index. This has been caused by high inflationary pressures imposed on the consumers, thus the rate cut is that is being proposed would be triggered by the inflation  numbers that would be released in the subsequent weeks. The Banks also await the rate cut to undertake policy decisions on their loaning and mortgage schemes, however the rate cut has been proposal has been ignored by ANZ which has already undertaken a hike on mortgage rates while other banks await the monitory policy decision by the RBA.

Despite the various considerations the interest rate cuts are likely to pose certain advantages for the Australian economy. Firstly, it indicates a positive outlook for the Australian economy in 2013- 2015 the rate cut is likely to improve industrial growth by making industrial borrowing somewhat easier. Secondly, the rate cut is an indicator of easing of the pressure of the Australian economy and the reduction in the fiscal deficits as seen in the current year. The government expects a surplus by 2015; therefore the rate cut can be undertaken to further put an impetus on the growth. Thirdly, the rate cut is likely to increase and boost consumer demand which is lacking as proposed by the CPI in 2012. Therefore to aggressively boost consumer demand the rate cut is being actively pushed forward by all quarters of the Australian government. The expectation of the rate hike has caused many banks and industries to hold their key policy decisions, and would be taken after the 1^st May 2012 after the RBA proposes certain clarity on the rate cut (Australian Budget 2011- budget.au.gov – accessed on 24/4/2012).

4. Conclusion

The proposed rate cut has been expected in the Austrian economy for over some time now. The proposed rate cut has generated along with it certain hype and certain economic expectations which have been attached to the rate cut.

With the Australian government firmly pushing for the rate cut with the backing of the prime minister the rate cut is the determinant of the Australian economic policy over the nest fiscal. However the desired impact waits to be determined after the cut is actually imposed on both the domestic and global economy.

5. References

• Fraser, Ian, Anthony Harrington, January 11, and 11 2011. “Australia – Economy and Trade of Australia – QFINANCE.” Financial resources, articles, concepts and opinions from QFINANCE – QFINANCE. N.p., n.d. Web. 23 Apr. 2012. <http://www.qfinance.com/country-profiles/australia>.
• “Interest Rates | Reserve Interest Rate and RBA news | News.com.au.” News.com.au | News Online from Australia and the World | NewsComAu. N.p., n.d. Web. 23 Apr. 2012. <http://www.news.com.au/money/interest-rates>.
• Bryant, Nick. “BBC News – Australia’s two-speed economy threatens to hurt growth.” BBC – Homepage. N.p., n.d. Web. 23 Apr. 2012. <http://www.bbc.co.uk/news/business-14706066>.
• “ANZ lifts home loan, small business rates with other lenders tipped to follow |   News.com.au.” News.com.au | News Online from Australia and the World | NewsComAu. N.p., n.d. Web. 23 Apr. 2012.
• “Budget Strategy and Outlook 2011-12 – Budget Paper No. 1 – Statement 2: Economic Outlook.” 2011–12 Commonwealth Budget – Home. N.p., n.d. Web. 23 Apr. 2012. <http://www.budget.gov.au/2011-12/content/bp1/html/bp1_bst2-02.htm>

KD24

But you can order it from our service and receive complete high-quality custom paper.  Our service offers Economics  essay sample that was written by professional writer. If you like one, you have an opportunity to buy a similar paper. Any of the academic papers will be written from scratch, according to all customers’ specifications, expectations and highest standards.”