Macroeconomic Forecasting and Analysis - Macroeconomics Assessment Answers

Macroeconomics Assignment Help

• Part A: Macroeconomic Forecasting

Provide forecasts for the variables listed below by inserting a number in the grey boxes. In submitting Part A of the assignment you must submit the entire document to Blackboard. Note that Part A of the assignment will be marked in conjunction with Part B.

• Part B: Macroeconomic Analysis

Your task for Part B of the assignment is to write a commentary and discussion piece on the economy similar in nature to that which would be written by a macroeconomist from a major bank or consultancy. I would like you to outline your opinion on the state of the economy. Please complete your assignment by writing in the grey box provided below. Some instructions on how to go about completing Part B of the assignment are list below. Please follow these instructions.

• 1. Recent data and developments: Discuss how your forecasts in Part A compared with the actual numbers. You may want to outline why there were errors, if any, in your forecasts. Outline the implications of the data for fiscal and monetary policy makers.
• 2. The global context: Outline what you think are some of the key recent global economic events which have impacted, or are impacting, on the domestic economy. These could be events which occurred up to 5 years ago but are still influencing the domestic economy.

Australia is a resource rich nation open economy and has shown massive economic progress during the last two decades. But the economy is facing several economic challenges since last three years. Since Australia embraced globalization and adjusted its economic liberalism, the economy is closely interconnected with the global economy. As a consequence, major global events affect the Australian economy to a significant extent. Some of the key global events are:

1. Fall in global commodity prices: The downward trend of global commodity prices persist for a substantial period of time. Australia has abundant supply of minerals and considered as one of the major exporter. As the price of iron ore, coal and other valuable minerals price comes down, Australia becomes a great loser. The economy is losing substantial amount of exports earnings. Since Australia is a commodity based economy, it has a greater impact on the national income. (Neal Woolrich, 2014).
2. Slow- down in china: China plays a crucial role in the global economic landscape. China is the largest trading partner for Australia. A recent slow down on China is reflected on the sluggish demand for Australian exports. Lower demand for Australian exports lead to reduce the domestic earnings.
3. Devaluation of Australian dollar: The price of AUD is falling against USD in international foreign exchange market. The value of AUD has even come down below 70 cents – it implies global investors do not have much confidence on Australia. This is not a good sign for healthy economics.
4. Hike in US interest rate: US is expected to raise the interest rate at any point of time since the economy has gained a solid momentum of growth. Fed’s move on tightening the monetary policy will be a real game changer in global economic landscape.

• 3. Risks to the economy: Here discuss the most significant risks that the domestic economy faces. Outline one risk that would move aggregate demand (AD) to the left and one that would move aggregate supply (AS) to the left. Also, discuss your assessment of the probability of each event occurring.

Most significant risk that could cause a leftward shift of the aggregate demand curve is the fall in consumption expenditure and business investment. Since the domestic income is falling with a subsequent fall standard of living, household are likely to defer the consumer spending. Consumption expenditure is the key component of aggregate demand- thus a fall in consumption expenditure will lead to fall the aggregate demand and shift to leftward.

Another important factor that would shift the aggregate supply curve to the left is the low productivity growth. According to Krugman, productivity is everything in the long run. Productivity is considered as a fundamental source of economic prosperity. But productivity growth has found to be worst in the recent years in australia. It would definitely shift the aggregate supply curve to the left ( Fabri J, 2016).

• 4. Long-run outlook: Provide a forecast for Real GDP growth over the period 2016-2036 for the economy. Outline your reasons for such a forecast with regard to the long run growth drivers and the key factors which you think will influence growth in future.

The falling commodity prices mean shrinking the tax receipt for federal government. As an immediate effect the budget deficit is becoming worse year after year, the government has to either increase the tax or the cut the government spending. Ultimately it will further pull the economy towards recession. But the investment in non -resource sector has increased significantly. Despite the end of mining boom and the complete shutdown of automobile manufacturing, the long term economic outlook is optimistic. The economy has undergone huge structural transformation – from a resource based economy to a service economy. The earnings from service exports like tourism, higher education and health care is expected to outpace the loss in income from mining exports. Domestic labor market has improved to some extent as well as the consumer sentiment has bounced back.

Economists are on the view that Australia is doing much better than other commodity based economies. The deputy governor of the Reserve Bank, Dr Lowe is also optimistic about the long run economic outlook and believed that Australia has proved to be resilient than expected. While commodity prices have come down by 40% and even the mining investment has shown a sharp fall of 40%, the economy managed to expand at a reasonable pace. Diversity and flexibility of modern Australian economy will help to withstand the massive fall in commodity prices and will exhibit a rapid pace of economic growth in the long run. (Wade M, 2016).