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Thread: Help needed

  1. #1
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    Help needed

    Examine the impact of changes in interest rates on economic growth and
    external stability in Australia

    what key elements would i need to include

  2. #2
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    Re: Help needed

    Hi,

    This is how I would do it, but I'm sure there are many other ways to structure the essay.

    Intro: define economic growth and external stability: i.e. economic growth refers to an increase in the volume of goods and services produced by an economy over time, which is usually measured by annual changes in real GDP. The ABS measures the rate of economic growth quarterly, using information from household and business incomes, expenditure on g/s, and production by firms. External Stability is a major goal of the Government in order to achieve stability on external accounts, to ensure Australia is able to afford imports and finance our foreign liabilities. Domestic interest rate movements can affect both economic growth and external stability.

    Para 1: Domestic - if interest rate decreases (could be due to RBA trying to stimulate economic activity)
    - becomes cheaper to borrow money, decreases incentives to save = increase economic activity due to increased consumption = more economic growth (then include an example)
    - however, can be hard as monetary policy is more effective at slowing down the economy than speeding it up + time lag of 6-18 mths

    Para 2
    - in terms of external stability (there are some opposing elements, depending on which outpowers which), with decreased IR, there could be more imports, which deteriorates the CAD (BOGS)
    - but there are also decreased financial inflows by foreign investors as they get lower returns (thus, KFAS decreases as it is I-S) thus, depreciating the $A, which could increase X and thus, decrease CAD
    - as IR decreases and $A depreciates, our NFL are more expensive to finance, increasing outflow from NPI, worsening CAD
    - savings may decrease due to less return (KFAS increases, but may be offset by decreased foreign investment)

    then do the same with Increased interest rates which is like sorta the opposite

    Sorry if anything was wrong (i didnt mean it), and I hope this helps

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