Economic Assignment Solution

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Added on 2020-05-28

Economic Assignment Solution

Added on 2020-05-28

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Running Head: ECONOMIC ASSIGNMENT Economic AssignmentName of the StudentName of the UniversityAuthor note

ECONOMIC ASSIGNMENT 1Table of ContentsAnswer 1..........................................................................................................................................2Answer 2..........................................................................................................................................5Answer 3..........................................................................................................................................9Answer a......................................................................................................................................9Answer b....................................................................................................................................11Answer c....................................................................................................................................11Answer 4........................................................................................................................................11References......................................................................................................................................14

ECONOMIC ASSIGNMENT 2Answer 1The article discusses rapidly growing price of houses in the Australia. The incidence ofprice rise is often considered as overvaluation in the housing market. However, somecommenters discard the argument of overvaluation on the ground that measure used to valuehouses are actually flawed. The article critically evaluate argument and counter argument forhousing price inflation in Australian housing market. It is argued that housing prices in the nation have increased at a faster rate than othercontemporary countries indicating overvaluation of the equilibrium prices. In response to a rapidgrowth of per capita GDP housing price picked up a rising trend in mid 1990s. Housing priceshad accelerated so fast that it soon overstate income growth leading to a rise in the ratio ofhousing price to income. Traditional measures such as ratio of price and income and that ofprice to rent have shown an overvaluation of houses by more than 20 to 25 percent. The growingprice of houses attracts people to investment in property market. The fund requirement to makeinvestment on houses results in a rise of debt to income ratio. The figures for debt to incomeratio are consistent with is competitor countries such as Canada, New Zealand and UK. Highdebt ratio is an indicator of instable financial status and associate risk for the concerned industry.The argument of overvalued housing price is countered by stating price is computedbased on absolute values. The use of difference of average housing price across countries toestimate housing price valuation is a problematic approach. According to this argument after apersistently low housing price for a period,the abruptly rising house price indicates a catch uprather than overshooting. Price to income ratio has recorded an increase in terms of all itsmeasures. Despite having discrepancies in housing price with a comparatively high price of

ECONOMIC ASSIGNMENT 3houses in coastal areas and capital cities, the price to income ratio is highly consistent within thenation. When comes to international platform, the comparison of price to income ratio becomesdifficult because of differences in housing coverage and measures of disposable income. Whencomparison has made in international scale then Australia broadly appears in line with othercompeting nations. Not only house prices exceeds its equilibrium level but also the equilibriumitself rose to a considerably high level. Disinflation and financial liberalization are two factorcontributes to a rise in equilibrium level of house price and consequent rise in debt. Thechanging dynamics of equilibrium make it difficult to devise a comparative analysis of propertyprice across different countries. A low level of price and financial liberalization along with a lowinterest rate increases availability of credit and the serviceability of high debt levels increasesleading to rising indebtedness and high ratio of house price to income. A suitable approach for estimating house price is to model housing price at times whentransition to housing price has done completely. Under this approach, basic economic conceptsof demand and supply side factors and difference between actual and forecasted value both aretaken into consideration. In order to correctly asses housing prices econometric approaches arealso used. Time series analysis based on suitable explanatory and explained variables, User costapproach and trend approach are some of the econometric methods for computing house prices.The general equilibrium framework illustrates the relation of real interest rate with debt orincome ratio. Studies found clos inter-relation among high prices of housing, low interest rateand household debt. High house prices reflect the supply side constraint. Housing supply falls in short ofdemand creating an upward pressure on prices. One major factor contributing to high demand of

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Economic Assignment Solution