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1Assignment 5: Problem Essay Question Running head:ASSIGNMENT 5: PROBLEM ESSAY QUESTION Assignment 5: Problem Essay Question Author’s Name Institution Instructor’s Name Course
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2Assignment 5: Problem Essay Question Assignment 5: Problem Essay Question Part 1: Introduction Australian financial market performance has worsened recently and a major reason behind it is the negative impact of a fall in the growth rate of the Chinese economy. This impact has disrupted the macroeconomic conditions of the financial markets. Focusing on the economic perspective, it is observed that the growth of the Chinese economy is vital for the Australian economy. This is mainly because the commodities of China are highly consumed and most of the consumers rely on these commodities. It has also been reported that poor growth of GDP and inflation in the Australian economy has worsened since the year 2018 (Mathews, 2016). In addition, the economic growth of Australia during the year 2019 to 2020 is highly expected to increase by only 2%. Additionally, by 2021, a slight increase in the growth rate of the nation’s economy is expected because the negative impact is also forecasted to deliver greater impact than that of the Chinese economy at present (Reserve Bank of Australia, 2019). Hence, considering these aspects, this essay mainly explores different economic-based theories and different media reports, which are applicable for examining the actual impact of declining Chinese economy upon the Australian one. It also aims at identifying why the Australian government has been intervening the production process of different goods and its services along with the distribution of income. However, these aims are set to be fulfilled by introducing government macroeconomic intervention theory and conducting an analysis of different economic variables thereby relying on the suggestions related to the different alternative economic policies through the application of macroeconomic theory.
3Assignment 5: Problem Essay Question Part 2: Analysis Keynesian Economic Theory Figure 1: The Keynesian AD/AS Model Source: (Khan Academy, 2019) The above figure 1 entails the fact that the aggregate demand is barely stable as it is bound to change at any point in time. In this figure, AD denotes aggregate demand, AS denotes aggregate supply, and SRAS is identified as short-run aggregate supply. The vertical axis represents the price level of goods and services, and the horizontal axis represents the real GDP value. An intersection between AD0and SRAS at the P0is the stable price level of goods/services and correspondingly YPdenotes full employment whereas Y0represents a lower rate of employment. Herein, it is observed that AD falls easily due to its volatile nature. Even after considering the demand from the point of YP, it is clear that a recessionary gap tends to developed if viewed from the perspective of the Keynesian economic theory. Similarly, if the aggregate demand would further increase as shown in the above figure 1 then, it would result in the generation of the inflationary gap. This would gradually result in inflation in the economy.
4Assignment 5: Problem Essay Question Theory of Government Macroeconomic Intervention The Keynesian economic theory basically helps in determining the faults such as lack of employment and income distribution in an inequitable form. Identifying these areas tend to assist in driving the growth and development of an economy. Examination in terms of aggregate demand and supply is also possible through the application of Keynesian economic theory. Since investment decisions are observed to be crucial for the investors, their future expectations usually become higher. The idea associated with this theory further portrays that expectations of economic development and GDP growth are only possible if people from a nation decides to sell their goods and services to other countries (Khan Academy, 2019). Evidence suggests that the fall of economic growth of Brazil was due to the global economic crisis, which took place during the year 2007 to 2008. In addition, the economic recession that occurred in 2009 delivered a devastating impact on the Brazilian economy. The global economic crisis also involves a decline in the Chinese economy. Economic growth and development of Brazil declined for the three consecutive years. Furthermore, economic analysis through the application of Keynesian economic theory helped in determining crucial needs in order to stabilize the economy. Besides, five major economic approaches were initiated and the first approach highlighted a major need for introducing macroeconomic policies by the Brazilian government (Cunha, Ferrari-Filho, & Prates, 2011). The Decline in the Brazilian Economy During the recession in 2009, a need for introducing monetary policy, fiscal policy, and policy of exchange rate were required to form an economic equilibrium in Brazil. In this situation, it could be understood that there is an urgent need for a process through which newly developed policies can be coordinated. However, these tax policies were further referred to as
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5Assignment 5: Problem Essay Question one of the key resources that assisted the economy to attain growth and development through the expansion of the aggregate demand. Moreover, reallocation of the income that was distributed unequally in the Brazilian economy was also evident. During this phase, the perspective of Keynes entailed that aggregate demand and supply was to be maintained alongside understanding the availability of the supply of surplus investment or funds in hand. This was considered in order to utilize those funds in situations such as economic instability in Brazil. Apart from the involvement of the Keynesian perspective, the Brazilian government took an initiative of expanding the programs of income transfer along with providing extension regarding security systems as well as increasing investment through the collection of taxes. This collection of funds was further used in conducting the program in order to accelerate the economic growth in the nation. Basically, the effect of the economic crisis faced by the Brazilian economy urged the governments to introduce and coordinate tax policies to stabilize the economy. In doing so, it assisted the Brazilian economy to organize the economic system through the introduction of both coordinated along with active macroeconomic policies within the economic system (Arestis, Filho, & Terra, 2018). Development and Coordination of Tools and Policies Active economic policies delivered effectiveness in reviving the declining economy of Brazil. The post-Keynesian economic theory further played a major role in developing an effective proposal regarding active economic policies such as monetary, fiscal, and exchange- rate policies. Implementation or coordination of these policies was found to overcome associated issues and challenges that were evident in the nation’s economy. In this concern, the most critical issue identified during this phase was a high rate of unemployment, unequal income, and saving
6Assignment 5: Problem Essay Question capital budget. Furthermore, the approach of post-Keynesian economic theory stabilizes the economy that is unbalanced and considers the attainment of a long-term vision, especially regarding its high growth. These visions encompassed the estimation of possible economic problems and the formulation of effective mitigation plans by facilitating active coordination among the team members as well as developing a higher level of commitment from the Brazilian government and other financial authorities in order to enhance the economy (Arestis, Filho, & Terra, 2018). Moreover, examining the fall of the Brazilian economy in a more critical way, there were other requirements also that were to be fulfilled with the support of its government. This could be done effectively by first formulating an appropriate proposal so that the growth and development of the nation can be considered as the top priority. However, viewing from ‘The General Theory Of Employment, Interest And Money’, the developed proposal actually lacked equal distribution of income and wealth alongside having a shortage of employment facilities to be provided to its citizens, and constant production rate of products and/ or services (Arestis, Filho, & Terra, 2018). Figure 2: GDP Growth Rate in Brazilian Economy Source: (Keller, 2012)
7Assignment 5: Problem Essay Question Besides, the above figure 2 highlights that integration of ideas proposed by Keynes further developed an economic proposal where capital levied along with the fiscal policies, and income taxes that were actually progressive in nature were focused to be the major aspects to drive the growth of the declining economy of Brazil. These requirements were all highlighted under the policies that were set to be introduced by Keynes during this phase. Hence, it can be said that identifying the poor demand and supply of goods and services, these developed policies, which were to be introduced served a purpose of enabling equal distribution of income and wealth among the public. Keynes perspective also portrayed that the equal distribution was to be achieved by splitting up the capital budget into two parts. These two parts were referred to as capital budget and the current or the ordinary budget funds. These investments were segregated in order to ensure the public for providing them with basic services. However, it must be noted that this was originally planned with a major purpose of stabilizing the consumption cycle in the Brazilian economy (Weisbrot, Johnston, & Lefebvre, 2014). The Assistance of the Chinese Economy Even the Chinese economy assisted the Brazilian economy during the year 2008 but was only before experiencing the economic recession in the year 2009. It actually helped in generating surplus within the current account through the accumulation of overall capital reserve of minimum $193.8 billion. This amount of capital reserve safeguarded the problems and issues that directly aroused from the external environment of the economy. With the help of these types of initiatives, Brazil was able to overcome the recession crisis as compared to the crisis that took place from 2007 to 2008. However, the Brazilian Central Bank (BCB) reduced the actual interest rate from 13.75% in the month of January in 2009 to that of 7.8% in the September month of the same year (Arestis, Filho, & Terra, 2018).
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8Assignment 5: Problem Essay Question Part 3: Conclusion It is understood that alike Australia at present, the Brazilian economy greatly relied upon the consumption of goods and services that were supplied by the Chinese economy. This reliance further affected the Brazilian economy for the 3 consecutive years i.e., 2007, 2008, and 2009. This decline in the economy further resulted in unemployment, unequal distribution of income among the public, unstable demand and product growth due to poor productivity. However, the Brazilian economy was able to escape this critical phase as legal authorities rose up to take initiatives through the integration of ideas and thereby benefitting economic practices as predicted by Keynes (Keynesian Economic Theory). Rather than emphasizing to stabilize the unequal distribution of income and other economic requirements, Brazilian government identified the economic core areas and undertook effective initiatives to improve and ensure growth and development of the economy for a longer-term. As a result, since the ending phase of the year 2009, economic improvements were witnessed at a constant rate. In this regard, a vital role was played by the government as they made a decision of introducing newer fiscal, monetary, and market policies in the Brazilian economy. Since Australia is in the same situation as that of Brazil starting from 2007 to 2009, it is recommended that the Australian government must intervene in the productivity rate of good and its services in the country. From the Keynes perspective, the government must introduce newer tax policies and make effective economic decisions on their own rather than relying upon the Chinese economy. This intervention undertaken by the government will deliver effectiveness as the decision would focus directly upon the core areas of the economy. Thus, undertaking these actions could enhance the financial market performance as well as mitigate the further decline of the nation’s
9Assignment 5: Problem Essay Question GDP at present. These effective interventions will also favor long-term growth and development of the Australian economy.
10Assignment 5: Problem Essay Question References Arestis, P., Filho, F. F., & Terra, F. H. B. (2018). Keynesian macroeconomic policy: Theoretical analysis and empirical evidence.Panoeconomicus, 65(1), 1-20. Cunha, A. M., Ferrari-Filho, F., & Prates, D. (2011). Brazil Responses to the Global financial crisis: A well succeed example of Keynesian policies.Panoeconomicus, 58(5), 1-34. Keller, Y. (2012).Inequality and economic growth in Brazil.Department of Economics at the University of Zurich, 1-41. Khan Academy. (2019).Aggregate demand in Keynesian analysis. Retrieved September 23, 2019, from https://www.khanacademy.org/economics-finance-domain/macroeconomics/ income-and-expenditure-topic/macroeconomics-keynesian-economics-and-its-critiques/ a/aggregate-demand-in-keynesian-analysis-cnx Mathews, T. (2016).The effect of Chinese macroeconomic news on Australian financial markets.Darden Business Publishing, 1-10. Reserve Bank of Australia. (2019).Statement on Monetary Policy – May 2019. Retrieved September 23, 2019, from https://www.rba.gov.au/publications/smp/2019/may/economic-outlook.html Weisbrot, M., Johnston, J., & Lefebvre, S. (2014). The Brazilian economy in transition: Macroeconomic policy, labor and inequality.Center for Economic and Policy Research, 1-27.
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11Assignment 5: Problem Essay Question Bibliography Domingues, E. P., Magalhães, A. S., Betarelli, A. A., Junior, T. S. C., & Santiago, S. (2014). The world financial crisis in Brazil: Industry and regional economic impacts.Journal of International Business and Economics, 2(3), 57-94. Monteiro, E. B. (2015). Political choice and economic crisis in Brazil: A case of mismanagement of public money (Doctoral dissertation, City College of New York).CUNY Academic Works,1-48. OECD. (2018). OECD Economic Surveys.Brazil,1-60. Orair, R. O., & Gobetti, S. W. (2017). Brazilian fiscal policy in perspective: From expansion to austerity.Working Paper, 1-28. Phillips, W. (2016). Economic survey of Latin America and the Caribbean.Brazil, 1-9.