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Running head: ECONOMICS ASSIGNMENT
Economics Assignment
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ECONOMICS ASSIGNMENT
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Table of Contents
Article 1...........................................................................................................................................1
Article 2...........................................................................................................................................1
Article 3...........................................................................................................................................1
Reference list...................................................................................................................................1

ECONOMICS ASSIGNMENT
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Article 1
Two possible downside risks to the global economy as per the Reserve Bank of Australia
(RBA) are discussed as follows.
Lower return on government bond: Recently, the RBA has planned to cut down the cash rate
to 0.75%. This sharp decline in the interest rate downsizes the return on savings and government
bond. The interest rate is the income of the financial institutions. The financial instruments, such
as, bank loan, government security and bond receive interest in exchange of giving loan after a
certain period. Subsequently, the amount of interest earned in the loan process will help in
extending the further the loan making process. The declining interest rate lowers the monetary
return for the loan providers. This consequently makes the loan providers uninterested to involve
in the further loan procedure. As a result of this, the wealth generation program gets hampered
owing to diminishing interest rate (Adeney 2018). Referring the Australian economy, the
government revenue has been reported to get declined in response to the declining average level
of borrowing cost. According to the scholars, the falling interest rate results in the reduction of
the currency value in the domestic market. Therefore, the Australian dollar has been countered
with the record low level in the recent year. It has been observed that the Australian economy has
successfully dragged down the inflation rate to its target level as a result of lowering the interest
rate. Declining inflation rate improves the buying capacity of the consumer. This intensifies the
aggregate expenditure. Meanwhile, the government cuts down the tax rate to encourage the
cumulative consumption level (Golev and Corder 2016). The declining tax rate shrinks the
governmental revenue, which in turn, compels the government to pay low monetary return for
the government bonds.

ECONOMICS ASSIGNMENT
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Deteriorating international trade: The evolving trade conflict between China and the USA is
the serious concern for the Australian trade sector. The growing uncertainty in the international
trade vows a challenge for the international economy including the Australian economy. As per
as study is concerned, the current fall in interest rate is expected to bring detrimental impact on
the foreign investment the Australian economy (Apergis 2014). The global investors are not
feeling confident on the face of international financial crisis. The financiers are skeptical about
the return. This unattractive return acts as a discouraging parameter for the stakeholders. Hence,
the investment level tends to get declined due to lower level of cash rate. Meanwhile, the
domestic currency gets devalued when cash rate starts falling (Spies-Butcher and Henderson
2018). This makes the Australian goods expensive for the foreign buyers and import goods less
costly for the Australian people. This has resulted in the deterioration of the balance of trade
condition for the country’s trade condition. People begin to purchase more foreign goods as they
need to pay less with respect to the previous level. On the contrary, the commodity price for
export will be declining as it turns into more expensive in the international market (Soldatic
2018). The demand for the Australian exported products receives downsize impact, which in
return, brings negative impact on the export producers. It has been noticed that export earnings
are intensely associated with the economic growth of the country. The export sector has been
reported to have large contribution to the country’s economic development which further ensures
the development of the employment and output level of the country (Metaxas and Weber 2016).
In this regard, the dwindling international trade is assumed to pull down the progress of the
Australian export sector. This will intensify the pressure on the foreign reserve as well as
augment the financial debt for the country.