While the Budget factored in a decline in Australia’s terms of trade, the fall in global commodity prices over recent months has been larger than anticipated.
“While the Budget factored in a decline in Australia’s terms of trade, the fall in global
commodity prices over recent months has been larger than anticipated.” (Australian Treasury, Mid-year Economic and Fiscal Outlook 2012-2013, 22 October 2012, p16)
a) Discuss the reasons for the main movements in Australia’s terms of trade over the last decade. (6 marks)
b) What could be the likely impact of a decline in the terms of trade on the Australian Economy? Analyse the impact on the macroeconomic variables in Australia, making use of the Mundell-Fleming model, assisted by diagrams. (8 marks)
c) Discuss the implications for monetary and fiscal policy of the decline in the terms of trade. Make use of diagrams in your answer. (6 marks)
This assignment is in essay format and should conform to standard referencing procedures. That is, footnotes should be used to support the text and all reference listed alphabetically in a bibliography. At least five references should be included as evidence of the extent of research undertaken.
Presentation: deduction of up to 4 marks
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