Question

Background: Evaluating the International Macroeconomic context of Australia's 2020 economic performance – current policy challenges and likely future directions. Is Australia well positioned to recover in 2021?

Question: Describe in 500 words with a diagram the intertemporal model of the current account- the CA balance: likely changes and implications for future consumption - metzler diagram - implications for domestic investment.

Answer 1

Evaluating the international macroeconomic context.........................

The outlook for the Australian economy is for growth to pick up over the next two years, supported by accommodative monetary policy, a pick-up in mining investment and a turnaround in dwelling investment. 2019, the inflation rate in Australia was around 1.6%, a rate that is expected to decrease to 1.4% in 2020 and increase again to pre-pandemic leves of 1.8% in 2021, according to the latest World Economic Outlook of the IMF. Current governement balance shows a moderate surplus in 2019 (0.5% of GDP), which is expected to decrease to -0.6% in 2020 and -1.8% in 2021. An increase in commodity prices helped to cushion the widening of the deficit and keep public debt levels moderate

The labour market and inflation forecasts are little changed from the November Statement. The unemployment rate is forecast to fall to around 4¾ per cent in 2021. Wages growth is expected to continue at around its current pace over the forecast period. Inflationary pressures in the economy remain subdued. Inflation is expected to increase a little over the next couple of years, as spare capacity in the economy declines, to be around 2 per cent by the end of 2021.

Describe in 500 words with a diagrame......

The current account deficit is a measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments (BOP).

The prevalent theoretical framework for studying the dynamics of the current account is the intertemporal approach, which views current account as a change in the net foreign asset position of a country. The intertemporal approach is founded on utility maximizing decisions by economic .

Balance on current account as a percentage of GDP

Sources: ABS, Balance of Payments and International Investment Position (Cat. No. 5302.0) and National Income Expenditure and Product (Cat. No. 5206.0)

The intertemporal approach to current-account analysis extends the absorption approach through its recognition that private saving and investment decisions, and sometimes even government decisions, result from forward-looking calculations based on the expectations of future productivity growth, government spending.