Discuss the impact of the inte
Discuss the impact of the international business cycle on domestic economic performance and policy settings.All countries that participate in world trade impact on the international business cycle. The further an economy is 'integrated' into the world economy, the more the international business cycle will affect that economy. Globalisation is leading toward further and deeper economic integration and as this happens, the international business cycle will have even more of a dramatic effect on domestic economic growth, performance and policy settings. A rise in the international business cycle tends to increase demand and output in trading countries whereas a fall in the international business cycle tends to decrease demand and output in those countries. Fluctuations in the business cycle will have an affect on domestic economic performance and domestic economic policy should be aimed at moderating the effects of the international business cycle on the domestic economic cycle.The international business cycle is defined as being increases in world GDP over time. The general trend is for world output to grow over time and since world war two, industrialised countries have averaged growth between 3-4% per year. Over 1990-19
Changes in the international business cycle have an effect on domestic demand levels, domestic inflation levels and the cost of imports. Australia's economic growth (increases in real GDP over time) fell in 1983, the early 1990's and in 2001, directly corresponding to global slowdowns in these periods of time. External StabilityExternal stability refers to the situation when export income is sufficient to finance import expenditure. Real shocks involve a change in real variables leading to varying consumer and industry confidence. The Asian Crisis was caused by a collapse of the Thai Baht which triggered increasing uncertainty toward the Asian newly industrialised economies from foreign investors. in 1987 and the Asian Crisis of 1997. The international business cycle can be drawn graphically as seen in the diagram below. The Reserve Bank of Australia (RBA) will tend to conduct monetary policy in response to the international business cycle depending on our domestic economic conditions. When world growth is slowing or in recession, the government may use an expansionary fiscal policy stance by handing down a smaller surplus or larger deficit. [insert J-curve diagram]* An upswing in the business cycle could also possibly cause structural unemployment. As the cycle effects key economic indicators such as unemployment, inflation and external stability, the government seeks to maintain a degree of control that allows fluctuations in the cycle to be a benefit and not a hindrance.
Common topics in this essay:
Inflation Changes,
Examples RBA,
,
Business Cycle,
Stability External,
Growth Varying,
business cycle,
international business,
international business cycle,
Australia OECD,
Thai Baht,
Settings Macroeconomic,
Asian Crisis,
domestic economic,
economic growth,
fiscal policy,
external stability,
policy settings,
changes international business,
changes international,
effect domestic,
monetary policy,
business cycle affect,
domestic economic growth,
response international business,
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