hey people i need sum help this is my question i need to no the current causes of australia's external instability and i need 2 no how the CAD limits economic growth .......well any help wud b supa appreciated hehehe thanx
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External Instability & Economic Growth (1 Viewer)
- Thread starter hedkandi9
- Start date
Re: External Stability & Economic Growth
1. High foreign debt due to:
-relatively low interest rates overseas
-the debt cycle (as interest payments accumulate as are foreign funds needed to pay off foreign debt)
-budget deficits by state/federal governments in the past
Foreign debt is around half a trillion at the moment, I think.
2. High CAD due to:
-high imports (due to economic growth, strong $A, higher real wages etc)
- the debt cycle
-companies operating in Australia are remitting profits to overseas owners and hence enlargening the size of the net incomes deficit.
-interest rates going up overseas and hence increasing debt and liabilities.
These are just the most important ones that I can think of.
How does CAD restrain eco. growth?
Foreign investors and lenders may become weary about Australia's inability to pay off debt and may either charge higher interest rates (which worsen debt levels) or refuse to invest (hence there'll be less investment and less eco. growth)
Worst case scenario would be capital flight where there is a 'flight' of wealth out of the country.
See here:-
http://en.wikipedia.org/wiki/Capital_flight
What are the causes of external instability?hedkandi9 said:
1. High foreign debt due to:
-relatively low interest rates overseas
-the debt cycle (as interest payments accumulate as are foreign funds needed to pay off foreign debt)
-budget deficits by state/federal governments in the past
Foreign debt is around half a trillion at the moment, I think.
2. High CAD due to:
-high imports (due to economic growth, strong $A, higher real wages etc)
- the debt cycle
-companies operating in Australia are remitting profits to overseas owners and hence enlargening the size of the net incomes deficit.
-interest rates going up overseas and hence increasing debt and liabilities.
These are just the most important ones that I can think of.
How does CAD restrain eco. growth?
Foreign investors and lenders may become weary about Australia's inability to pay off debt and may either charge higher interest rates (which worsen debt levels) or refuse to invest (hence there'll be less investment and less eco. growth)
Worst case scenario would be capital flight where there is a 'flight' of wealth out of the country.
See here:-
http://en.wikipedia.org/wiki/Capital_flight
Re: External Stability & Economic Growth
Oh and I forgot one thing that's really important.
If the government and RBA become more weary of the debt and CAD problems then they'll implement contractionary fiscal/monetary policies to restrain economic growth and hence growth of debt/CAD levels.
Oh and I forgot one thing that's really important.
If the government and RBA become more weary of the debt and CAD problems then they'll implement contractionary fiscal/monetary policies to restrain economic growth and hence growth of debt/CAD levels.
firstly thanx heaps 4 helpin sparcod it was a supa help 
heheheh secondly 2 dat chick who told me 2 research myself go get ......... i have been researching myself sooo dont judge n shut up .....im new 2 all this weird stuff n people r sayn just 2 ask the question sooo thats wat i did coz i was having heaps of trouble ..........
heheheh secondly 2 dat chick who told me 2 research myself go get ......... i have been researching myself sooo dont judge n shut up .....im new 2 all this weird stuff n people r sayn just 2 ask the question sooo thats wat i did coz i was having heaps of trouble ..........i went through heaps firstly i googled it n spent a whole day searching on all these random places i looked through my textbook its crap i went through my notes at skewl i read leading edge booklets i went everywhere its crazi im havin soo much difficulty i just cant sit down n do it i cant grasp the whole concept or like talk alot about it n stuff
-pari-
Active Member
leading edge has quite a lot of info on this, so you shouldn't have too much problem. it doesn't have a chapter/section dedicated to this on it's own, but you need to read, and interpret...
eg. external instability:
some possible causes...
- the high net income deficit + high cad --> here you could talk about either the current account problems ie trade deficit, or, more recently, economists suggest its' coz of low national savings
-high foreign liabilities - again you can talk about the low national savings and the need to borrow from foreign countries
- etc etc, i'm gnna get back to my own eco now lol. but it's all there...just keep reading
eg. external instability:
some possible causes...
- the high net income deficit + high cad --> here you could talk about either the current account problems ie trade deficit, or, more recently, economists suggest its' coz of low national savings
-high foreign liabilities - again you can talk about the low national savings and the need to borrow from foreign countries
- etc etc, i'm gnna get back to my own eco now lol. but it's all there...just keep reading
I dunno if anyones mentionedd this....
Strong economic growth leads to a surge in import spending, particurlarly if domestic growth exceeds global growth rates. Thus during periods of strong growth, the BOGS component of the CAD tends to rise, and thus leading to higher CADS. This is known as the 'balance of payments constraints'. I think this happend in the late 80s, and was a major cause of the 91 recession as the government used excessive contractionary policy to limit growth in cad at that time. Because this happens, High CAD's is regarded as one of the two 'speed limits' on economic growth, the other being inflation.
hopee that helps
Strong economic growth leads to a surge in import spending, particurlarly if domestic growth exceeds global growth rates. Thus during periods of strong growth, the BOGS component of the CAD tends to rise, and thus leading to higher CADS. This is known as the 'balance of payments constraints'. I think this happend in the late 80s, and was a major cause of the 91 recession as the government used excessive contractionary policy to limit growth in cad at that time. Because this happens, High CAD's is regarded as one of the two 'speed limits' on economic growth, the other being inflation.
hopee that helps
Thanks -pari- and redom.
You're on a roll.
To hedkandi9- all your stuff these exam questions should be answered in your textbook via the syllabus dot points. (Do remember that economic growth affects all other economic indicators such as unemployment, external stability, inflation etc). I guess that your problem was doing the research and undertanding the concepts. I hope we've helped you out there.
When I googled external stability economic growth the first result was this site:
http://www.abs.gov.au/websitedbs/D3310116.NSF/85255e31005a1918852556c2005508d8/40d8db3020a0d11bca256a410006e4bc!OpenDocument
Very good job done by the ABS there. If you play around with the links there. It's got statistics, graphs, questions, explanations (as to how those recorded figures came about as well as what went on in that context and so on) under 'explanatory notes' for some....
The part on External Stability is here!!
(I suggest you mention the Selected key concepts in your essay)
(To all those who do understand these topics inside out, I suggest you answer some of the questions thrown at you in your head. They seem really good)
P.S Please don't insult Without Wings or anyone else in this forum. Without Wings is the moderator who looks after the HSC Economics Forum.
You're on a roll.
To hedkandi9- all your stuff these exam questions should be answered in your textbook via the syllabus dot points. (Do remember that economic growth affects all other economic indicators such as unemployment, external stability, inflation etc). I guess that your problem was doing the research and undertanding the concepts. I hope we've helped you out there.
When I googled external stability economic growth the first result was this site:
http://www.abs.gov.au/websitedbs/D3310116.NSF/85255e31005a1918852556c2005508d8/40d8db3020a0d11bca256a410006e4bc!OpenDocument
Very good job done by the ABS there. If you play around with the links there. It's got statistics, graphs, questions, explanations (as to how those recorded figures came about as well as what went on in that context and so on) under 'explanatory notes' for some....
The part on External Stability is here!!
(I suggest you mention the Selected key concepts in your essay)
(To all those who do understand these topics inside out, I suggest you answer some of the questions thrown at you in your head. They seem really good)
P.S Please don't insult Without Wings or anyone else in this forum. Without Wings is the moderator who looks after the HSC Economics Forum.