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An assessment of the economic impact of COVID 19 on the Australian economy – an International...

An assessment of the economic impact of COVID 19 on the Australian economy – an International Macroeconomic perspective.

The intertemporal model of the current account- the CA balance: likely changes and implications for future consumption

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Expert Solution

The Corona Virus Pandemic is causing deep concerns among economists about the effects of the same on all countries alike. The resultant of the pandemic is that establishments across Australia and most other economies remain shut. Only Essential services and products are allowed for sale.

This means, that the demand for all other goods and services sees a rapid decline. Australia has tourism as one of its primary revenue making sources and the travel banks and the fear of spread has led to 0 growth of the industry and all other associated industries as well. The Banking Sector which is an equal contributor is also said to decline as bad debts could rise due to the significant losses which companies are making over a period of time.

As demand shrinks and supply becomes shorter, the overall output of the nation would decline rapidly this is also known as the gross domestic product of the nation. The resultant of this would be a fall in prices of goods and services as well as a recession which would bring in large scale unemployment as companies look to reduce their costs of operations.

The same has been explained with the help of the following diagram: -

In the above diagram, we see that the aggregated demand in the country shifts towards the left, indicating a decline in the demand. The demand curve is downward sloping and indicates that at lower prices, higher quantities of goods are bought. Similarly, the supply curve is upward sloping indicating that at higher prices, supply increases.

In the current scenario, the aggregate demand shifts due to reasons which are not related to price. The resultant is that the quantity of goods and services produced in the economy shift from Initial Quantity to Reduced Quantity this is also known as gross domestic product and is displayed on the Y Axis of the graph.

The Price of goods and services also declines from Initial Price to Reduced Price and the equilibrium shifts from E1 to E2 at lower demand and supply levels in the economy.

Conclusion: -

We can conclude by saying that in the Australian economy, major industries such as Banking, Finance, Education, Tourism etc would be hard hit do the negative effects of the corona virus. As a result, the aggregate or total demand in the economy would shrink and recession would cause low prices and high levels of unemployment in the country.

Please feel free to ask your doubts in the comments section if any.


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