Intermediate Macroeconomics - Research Paper Example

The decrease in the interest or cash rate will encourage the consumers and investors to spend more money. This, in turn, will increase the overall output and, as a result, will force the GDP growth rate to increase in the next two quarters. Hence, the decreasing inflation rate will contribute towards the real GDP growth for 2012 quarter IV and 2013 quarter I. This is also supported by the depreciating Australian currency. 2. Inflation Rate for 2012 Quarter IV and 2013 Quarter I: It is being forecasted that the inflation rate will be 0.

5 percent in the fourth quarter of 2012 and 0.6875 percent in the first quarter of 2013 (derived from the Australian Government Budget 2012–13). The inflation rate is being forecasted to be down in the fourth quarter of 2012 because of the less capital investment in response to the weakening economic conditions all over the world (RBA statistics). However, this low inflation rate will push the RBA to decrease the cash rate and, thus, force the investors to invest in the market. This, in turn, will increase the money circulation and spending and, hence, will increase the demand which will force the inflation rate to increase in the first quarter of 2013.

This is also supported by the decreasing interest rates (RBA statistics). . This is because of the decreasing inflation rate in the previous quarter and underestimated market demand (RBA statistics). Hence, the decrease in the inflation rate and market demand will force the RBA to take necessary measures to increase the overall economic growth of the country. In order to increase the demand and improve the investment activities, the RBA will decrease the cash rate. The decreasing cash rate will discourage the investors and consumers from saving their money and will, hence, increase the consumer spending, investment and market demand, which, in turn, will result in increasing the overall economic growth in the country (Mankiw, 2009).

The RBA will keep this decrease in the cash rate for a couple of months and will monitor the domestic and international market. The increasing market demand will eventually result in increasing the inflation rate and, hence, RBA will be forced to again increase the cash rate in the second quarter of 2013. 4. Average Exchange Rate between the Australian Dollar and the US Dollar to Prevail from November 1, 2012 to June 30, 2013: The average exchange rate between the Australian Dollar and the US Dollar, which is more likely to prevail from November 1, 2012 to June 30, 2013, is 0.

98 US dollars per Australian dollar (Derived with the help of Australian Dollar Currency Exchange Forecast). This can be directly related with the decision of the RBA to decrease the cash rate and interest rates. One reason behind the lengthened high exchange rate or value of the Australian dollar has been the difference in the interest rates prevailing in Australia and United States. The decreasing interest rate will force the investors to look for some other places for investment and hence, there