how to get a 100% in eco exam! (1 Viewer)

[SPYKE_JOE]

nah not really, just sed dat so ppl will answer my question lol. anyways...

how do you tackle a CAD or external stability essay?im shit at dem, any good advice what i should be included, like structural causes of it n stuff

 

[sarah kiss]

cyclical and structural

so first talk about the cyclical causes of the CAD- like when domestic demand for imports is high and the global economy is going through a downturn.. this leads to deterioation in the goods balance and higher CAD

then u talk about the structural factors such as Australia low saving rate and the net income deficit

so effect on external stability: makes the $A dollar more volatile as foreign investors could perceive the economy to be unstable hence reduce their investment leading to a depreciation which could lead to increase in foreign debt

hope that helps

 

[SPYKE_JOE]

thanks, i undastand d basics of it, its just hard tryin to elaborate it like leading edge suggested answers, they start talkin about all dese crazy trends n stuff

 

[furrycatau]

You want to talk about the structure of our export base aswell, the heavy reliance on agriculture.

Don't forget effects.
CAD acts as a speed limiter on economic growth (The balance of payments constraint)
Growth of foreign liabilities
Increase servicing costs (interest payments) on foreign debt
Volatility of exchange rate increase (High CAD undermines investor confidence in us)
Results in contractionary economic policies to reduce CAD short term
and a loss in International investor confidence
In regards to trends, I don't think they are too important, although it is important to know stats and previous years.
Hope this helps!

 

[SPYKE_JOE]

so in order to reduce CAD n external balance, you would use contractionary policies? monetary cant be used and proves to be unpopular, but how do fiscal? micro u would use labour deregulation leading to st unemployment and GBD but long run international competitiveness and GBS. what about fotreign liabilities?

 

[sarah kiss]

how do use fiscal

well to use fiscal the government uses budget surplus, the government uses the surplus of cash to pay off the foreign debt and encourage savings as it does not cause the crowding out effect

 

[SPYKE_JOE]

hey thats good, thanks

 

[Haku]

how does CAD limit growth?

 

[sarah kiss]

CAD vs growth

well what happens is when there is high levels growth, this results in an increase in demand for imports, which may cause the goods balance to deteriorate and higher CAD, so if the government wants to reduce the CAD they have to use contractionary policies such as higher interest rates to reduce growth, thus this acts a contraint on growth

 

[Jago]

how does CAD limit growth?

a sustained high level of deficit will lower overseas confidence (because they start wondering if the economy would be able to pay back any further investments), thus causing a reduction in the level of foreign investment, which is needed for economic growth. I believe this is called the Balance of Payment Constraint.

 

[sunjet]

CAD essay last year, i bet it comes up in Short Aswner.