Question

Background:

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(The final assessment is applied in nature and encourages you to use the tools developed in the course content to analyse and make sense of the world around you. In 2020 economies around the world have experienced unprecedented shocks to their internal and external balance situations driven by necessary closures and shutdowns of economic activity to deal with the Covid 19 health crisis. Recovery from deep Global crisis can be uneven and some economies are better positioned to recover than others. Your final assessment task for IME is to apply the theory developed in the course to the current world events from the Australian Perspective)

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Exchange rate determination in the short run and the long run - What can theory tell us about current and likely future changes in the value of AUD– assessment of policy mechanisms such as interest rate changes that may impact on the value of the AUD (500 words):

Answer 1

The world has changed dramatically nn the 5months since the last update of the world economic outlook in January a rare disaster corona virus pandemic, has resulted in a tragically large number of human lives being lost. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown.

This is a crisis like no other, and there is substantial uncertainty about its impact on people’s lives and livelihoods. A lot depends on the epidemiology of the virus, the effectiveness of containment measures, and the development of therapeutics and vaccines, all of which are hard to predict.

Addition many countries now face multiple crises like health crises ,financial crises and a collapse in commodity prices, which interact in complex ways. Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown .

Gobal growth in 2020 fall to 3percentage This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the global financial crisis.

Assuming the pandemic fades in second half of 2020 and that policy actions taken around the world are effective in preventing widespread firm bankruptcies, extended job losses, and system-wide financial strains, we project global growth in 2021 to rebound to 5.8 percent.

partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, Australian combined.

This is truly loglobal crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions. Emerging market and developing economies face additional challenges with unprecedented reversals in capital flows as global riskappetite wanes, and currency pressures, while coping with weaker health systems, and more limited fiscal space to provide support.

Moreover several several economies entered this crisis in a vulnerable state with sluggish growth and high debt levels.