Global Financial Crisis - Assignment

Added on - 15 Apr 2020

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Running head:ACCOUNTING FINANCIAL ANALYSIS REPORTAccounting Financial Analysis ReportUniversity NameStudent NameAuthors’ Note
2ACCOUNTING FINANCIAL ANALYSIS REPORTTable of ContentsAnswer to Question 1.................................................................................................................3Answer to Question 2.................................................................................................................6Answer to Question 3...............................................................................................................10Answer to Question 4...............................................................................................................11Answer to Question 5...............................................................................................................12Answer to Question 6...............................................................................................................12Answer to Question 7...............................................................................................................13Answer to Question 9...............................................................................................................13Answer to Question 10.............................................................................................................13Answer to Question 11:............................................................................................................14Answer to Question 12:............................................................................................................16Answer to Question 13:............................................................................................................18Answer to Question 14:............................................................................................................21Answer to Question 15.............................................................................................................23Answer to Question 16:............................................................................................................25Reflective Report:....................................................................................................................25References................................................................................................................................26
3ACCOUNTING FINANCIAL ANALYSIS REPORTAnswer to Question 1Current Economic Theories and their impact on financial services sector in AustraliaThe global financial crisis is necessarily triggered by the crumpling of the sub-prime marketof mortgage in particularly the USA. The housing market bubble burst took place during thelate 2006. There were widespread defaults of loans that indicated towards the fact that banksessentially took ownership of roughly worthless houses, giving way to loss. Consequently,the banking market crumpled (Vogel 2014). Banks also became reluctant to provide loans tothe overall public and particularly to one another due to fear of not getting back. Thissituation referred to credit crunch also affected the financial service industry. Therefore, thecrisis of 2008 necessarily ballooned into global financial crisis in which billions of mortgageassociated investments became bank, different well known investment banks went bankruptand share markets also crashed worldwide (Zeff 2016). However, the impact of the recentglobal financial crisis is considerably small on a worldwide scale owing to the followingfactors:-stimulus package of the Rudd Government,-slashing of the cash rate by the RBA-Overall Strength of the Australian economy-Resilience of the overall Chinese economy
4ACCOUNTING FINANCIAL ANALYSIS REPORTKeynesian economists were of the view that particularly during the period of the financialcrisis, the government of the nations have the need to enhance the total amount of theirspending in order to foster rate of growth of the economy and that is what the Australiangovernment did. The Central Bank of the Nation slashed the rate of interest in order toenhance the overall consumer spending (Zeff 2016).Description of the economic and political climate associated to financial service industryEconomic Growth OutlookReports reveal that economic fundamentals of Australia are strong and the outlook alsoremains very positive together with strong rate of growth, moderate level of unemploymentalong with contained levels of inflation. Forecast real rate of growth of GDP during 2012 and2013 as well as during 2013 and 2014 is lowered by around ¼ of 1percentage since the timeof budget. The unemployment rate is at approximately 6.25% during the middle of the year2014. Essentially, significant modifications to the entire terms if trade particularly in thecontext of the Chinese growth and low anticipated wage growth particularly weighed downheavy on the nation’s nominal GDP as well as fiscal position (Grant 2016).Nevertheless, the rate of unemployment is also recorded at around 6% by the middle of the year
5ACCOUNTING FINANCIAL ANALYSIS REPORT2014 and the rate of unemployment is a bit higher level than what is expected. The rate ofunemployment is also anticipated to stabilise at a specific level during the period 2014 and2015. This rate remained the lowest among the developed world as there were mainly nationsthat were still experiencing the ill effects of the worldwide financial crisis (Negishi 2014).Again, the rate of inflation is expected to remain within the target band of the RBA. Theforecast for inflation is 2.5% all through the quarter of June during the year 2014, slightlystronger than what was presented in the budget, representing the impact of higher amount ofprices of import from mainly the lower dollar (AUD) (Robinson 2017).Keynesians are of the view that waiting for a nation to get towards the level of fullemployment might take very long time. The Keynesian economists are of the view that “Inthe long run, we are all dead”. Essentially, the higher rate of unemployment was necessarilythe outcome of the market failure and a lack of the overall aggregate demand. In this case, thegovernment can intervene and rectify the identified market failure by utilizing differentexpansionary fiscal strategies for the purpose of stimulating demand. Therefore, the higherrate of inflation and lower wages as witnessed in this case might lead to reduced affordabilityof the consumers to purchase goods (Gibbons and Roberts 2013). Therefore, demand reduces
6ACCOUNTING FINANCIAL ANALYSIS REPORTand at the same time unemployment rises. In case if rate of inflation exceeds the nominalwages, then the real wages will also decrease and in that case, the overall consumer spendingwill also decline. This New Keynesian Phillips Curve suggests that there exists a trade offbetween the rate of unemployment and the rate of inflation. Essentially, higher level ofdemand leads to reduced unemployment but leads to increased rate of inflation (Davis andSanchez-Martinez 2015). Diagram is hereby presented below:Answer to Question 2Important features of the common economic theoriesThe classical economics by Adam Smith indicates towards the fact that people mainly act inthe self-interest and generate social outcomes also referred to as laissez faire economics (Linset al.2017). This indicates towards small government that implies lesser governmentinterventions.
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