Australia's Fastest Growing Economies

The size of financial flows out of Australia The level of financial flows out of Australia will also be determined by the domestic interest rates relative to overseas as well as international confidence in Australia and other economies. If Australian interest rates are relatively lower and the confidence in the Australian economy has deteriorated, capital outflow will increase, thus increasing the supply of AUD. At the present, interest rates are at low levels, however they are expected to rise in the near future as economic confidence and growth are relatively high. This means there will not be a large increase in the supply of Australian dollars.

As Australand has a flexible exchange rate, the first and most logical method is to reduce interest rates. This will cause an outflow of capital, and the sale of Australand dollars, as investors seek a higher interest rate elsewhere. This relation is illustrated in figure three below and shows that a decrease in interest rates causes a decrease in the exchange rate:

Effect of imports and exports: decreasing imports, increasing exports. If the Australian dollar depreciates, Australian exports become cheaper and

Conflict can occur between economic growth and inflation which in turn leads to conflict between unemployment and inflation. When an economy grows too quickly pressure on inflation rates increase. Australia’s current inflation rate is 1.3% (Economy Snapshot RBA 2016) The current acceptable rate of inflation nationally is between 1% to 3%. Inflation is defined as the sustained rise in the general level of prices in a market. For prices to be stable we should aim for 0% inflation rate. Introducing a fluid monetary policy which concentrates on identifying the fundamental causes of inflation rate rises in an economy, will assist in keeping inflation under control. For instance, if there were to be an excessive increase in demand for goods and services, demand being the primary factor for a rise in inflation, on a government level it should say to us, we need to identify the causes and commence action as quickly as possible to decrease the level of demand to ensure stability of the inflation

- For the foreign producers, when their currency weakens, production becomes cheaper (especially if they have currency reserves in dollars), and their sales go up, since the weaker currency is more attractive to foreign buyers.

The demand for Australian exports varies for a variety of reasons. One reason is changes in commodity prices. Another is the terms of trade. These two variations tend to have an immediate impact on the AUD. A rise in commodity prices and an improvement in the terms of trade are generally expected to improve the Current Account Deficit (CAD). This will often result in an increase in the value of the AUD because of the expectation that the CAD will improve over the short to medium term.

1-4. Why is inflation both good and bad? How does the government try to control it?

The decline in commodity prices and the significant fall in price of oil reflect a combination of lower growth in demand and significant increases in supply. Australia’s growth is continuing at a below-trend pace, with domestic demand growth generally weak. As a result, the unemployment rate has gradually moved higher over the past year. Overall, the output growth is seemingly to remain below trend for longer, and the rate of unemployment peak higher. The effects of the substantial easing in policy that had already been put in place shows that a further reduction in the cash rate was necessary. As a result, effective as of 6th May 2015, the cash rate had lowered to 2 percent. The global economy is expanding at a moderate pace, but some commodity prices are much lower than a year ago. This action is expected to add some further support to demand to foster sustainable growth and inflation outcomes consistent with the target. The decreased cash rates prompted the economy to show signs of growth, although at a rate somewhat below its longer-term average as public spending is subdued. With very slow growth in labour costs, inflation is forecast to remain consistent with the target over the next one to two years thus requiring monetary policy to be accommodative. The easing of monetary policy have failed to make significant

By raising the reserve requirement, the Fed also reduces money supply in the economy because banks will now be limited by how much money they can lend out. This is a good policy to use during inflation.

dollar resulting in the poor economic performance, the Australian government devalued the Australian dollar against the U.S. dollar by 12% in 1974 and replaced the peg to U.S. dollar with the peg to basket of currencies of each countries weight in the basket determined by its trading in Australia. It was promoted that it is appropriate to focus more on the effective exchange rates which showed a better way to examine the movement of domestic currency against the currencies of other countries. During this time also the government was facing a shortages of capital inflow and in 1974 the government responded with the lack of capital inflow by reducing the restriction on the borrowing for the period of 6 months to 2 years. In 1975, the restriction applied to the non-residents in fixed interest securities were also removed. This lead to an improved economy in 1976 but the capital inflow and the balance of payments were in deficit. The government devalued the Australian dollar by 17.5% against the trade-weighted index. (Manuell,

As the mining and export industry thrives, the value of the Australian dollar rises. Strong demand particularly from China is driving this process. There are numerous reasons why invest in Australian dollar. The first is Australia’s trade numbers are improving because an increase in volume has more than compensated for price declines. Trade performance is a fundamental determinant of exchange rates for it governs the balance of demand for a currency between importers and exporters.

The effect of depreciation and devaluation of currency is mixed on whole economy, as if exporters are in good place but if they are relaying on imported machinery, fuel, fertilizers and other imported inputs, so falling Australian dollar will raise the cost of these products. Same goes with people travelling to their home land at Christmas time or travelling in holidays they find it feasible to convert the currency rather than wait for Australian dollar to grow.

System conditions . In theory, the official and the private sector observerMonetary policy , current expectations , the central bank of a country how to control the supply of money in the economy , changes in interest rates , and maintaining control of the money supply . In other respects, monetary policy is the money you can borrow at rates . A good monetary policy, the central bank's target is that all have achieved a certain limit . It also depends on the economy , it is important to know how monetary policy should be implemented. It uses a set of tools to achieve these objectives and to combat the problem . We will mainly talk about the Reserve Bank of Australia and about set by the U.S. Federal Reserve Bank 's monetary policy slightly down Australia's monetary policy. Strategy is called austerity , if it reduces the size of the money supply or raising interest rates. Expansionary policy to increase the size of the money supply , or lower interest rates. Expansionary policy is traditionally used by lowering interest rates to solve the problem of unemployment in a recession , and austerity policies including raising interest rates to combat inflation. Changes in interest rates will affect the growth and cost of credit , thus affecting consumption, production, prices and employment in the economy is the social problems of the Reserve Bank of Australia . Monetary policy is the central bank 's most important ongoing responsibility, and what impact is defined as funds take

Inflation is general defined as the devaluation of the currency with the comprehensive and continued rising price level, which means the purchase of money is persistent declining (James and Charles 1975). And this is generally considered as the result of the amount of money in circulation more than the actual needs of the economy. It will directly leads to the devaluation of paper money. If the income of residents do not change, then the living standard of citizens will dropped, which might result in the social and economic disorder and can negatively impact the development of the economy. However, within a certain period of time, moderate inflation can stimulate consumption, expand domestic

Some would say that the main reason why the control of inflation is so important is that if inflation gets out of control, the economy stops growing. If inflation rises, the Monetary Policy Committee (MPC) is forced to raise interest rates. Consumers will stop borrowing to spend and firms will stop borrowing to invest. The housing market will slump, and along with it all the home improvement consumption that goes with it. Manufacturer’s exports will become less competitive. The economy may well drop into a recession.