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Econs Macro and Microeconomics - Essay Example

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Topic: Econs Class: Date: Question 1 In economic analysis the current balance refers to the difference between total value of goods, transfers and services imported by a given country at given period and the total exports of goods, transfers and services (Arnold, 2008)…
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Econs Macro and Microeconomics Essay
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Download file to see previous pages A deficit arises where government expenditure exceeds the revenue, while a surplus occurs where the budget revenue exceeds the government expenditure (Krugman & Wells, 2008). In this question will carry out a trend analysis of both the current account balance and the budget balance in United States of America, Australia and Indonesia, for a period starting 2007 to 2010. A table showing the both the current account balances over the four years. countries USA Australia Indonesia Years Current account balance Current account balance Current account balance 2007 -710,298,754,000 -58,031,516,121 10,492,590,000 2008 -677,140,573,000 -47,786,269,399 125,240,090 2009 -376,554,079,000 -43,890,735,442 10,628,489,686 2010 -470,902,198,000 -31,990,465,673 5,653,912,732 Source: TradingEconomics.com A Table to show the budget balance over the four years. countries USA Australia Indonesia years Budget balance Budget balance Budget balance 2007 -307,890,000,000 595,665,600,000 -4,321,050,000 2008 -757,741,000,000 787,874,900,000 -1,530,681,000 2009 -1,474,620,000,000 -914,601,600,000 -9,168,984,000 2010 -1,458,200,000,000 -1,617,496,600,000 -4,380,659,600 Charts to showcase the above trend Chart (1.0) Current account balance; Chart 1.1 showcasing the trend of the budget balance. From the above visual representation it can be observed that over the four years, Indonesia has had a surplus in its current account balances, this means that Indonesia is saving most of its resources than investing those resources. For the case of Australia and USA, both countries experienced a deficit in their current account, but Australia has gradually improved it current balance. This implies that, these countries are investing more than they are saving and thus, they are utilizing resources sourced from other economies in order to finance domestic consumption. Question 1b. Twin deficit refers to a situation a deficit in national budget leads to expanded deficit in the current account. Twin deficit proposition, argues that large budget deficit have negative impact on the national saving of the country, this in turn leads to souring the current account deficit. Although, some economist that this proposition is so weak in explaining this phenomenon (Hansen, 2003). A twin deficit exists in the case of the United States of America where the budget deficit has lead to expanding the current account deficit. This implies that United States acts as net debtor to other global economies. Therefore, the United States is investing extra resources to other world economies than saving and in return use resources from world economies to fund the domestic consumption. Question2. Indonesia has the largest economy in the south east of Asia, this economies is characterized by major development in the information technology sector thus having comparative advantage over countries in the region. Indonesia was worst hit by the recent global financial crisis that hit the world giant economies like the United States. Thus the Indonesia is put up measures so to try and shield its citizen from the financial crisis souring economic conditions in the country. The national government of Indonesia has embarked in various fiscal policy stances so to stabilize the economy. In the effort to stabilize the economy the government has decide to increase its expenditure, in this case the government ha ...Download file to see next pagesRead More
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