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The reason why Australia's balance of payments deficit
As I. F. Pearce （1961）mentioned that different schools of economics have different explanation about the reason why Australia's balance of payments deficit
1）Analysis of monetarism
Monetarists view that deficit is purely a monetary phenomenon, it appears in the situation that incremental demand for money is less than the level of domestic credit increment. Under a fixed exchange rate system, excess demand for money should offset by the foreign exchange surplus, and excessive domestic credit creation is reflected as a deficit. If the demand for money is constant, changes in the level of domestic credit is fully reflected changes in foreign currency.
Monetarists also believe that money supply over the demand for money has four outlets: buy physical assets in domestic and foreign, buy financial assets in domestic and foreign. Only some consequences of them may improve the international balance of payments, while the other ways will lead to the deterioration of the balance of payments. In short, overall, excess money supply is the reason for the international balance of payments deficit.
2) Structuralism analysis
Structuralisms view that balance of payments deficit of Australia for three reasons: one is disadvantage of export products. As primary products of Australia exports, its elasticity of demand for income is low, and price elasticity is also very low. Second is unfavorable sales market. The slow growth of the market economy constrained the growth of in exports of primary products. Third, low efficiency caused high export costs, which affecting the export profits.
3) Domestic Absorption
Domestic Absorption thought the income-expenditure equation created by Cairns explain the reasons for the international balance of payments deficit. In a closed economy, excess demand will result in inflation; and in the open economy will lead to balance of payments deficit(Stephen P. Magee ,1976）.
The impact that continuing imbalance in international payments to Australian economy
1) It caused a huge loss of foreign exchange reserves. The loss of reserves means financial strength of the country or even the entire national is decrease. This will damage the country’s international reputation.
2）It led to the shortage of foreign exchange, resulting in increased foreign exchange rates, currency exchange rate down. Once the currency exchange rate fell over, it would undermine the currency's international status.
3) It makes the country's ability that to obtain foreign exchange become weak, affecting the development of the country's imports of capital goods that needed for production, national economic growth is suppressed.
4) Persistent trade deficit may also make the country into debt crisis
In order to make up the balance of payments deficit what policies the government had adopted, and how to evaluate this policies.
It can be divided into financing and adjustment the two major categories that the policies about making up the balance of payments deficit
(1) Subsidy policy
As Herbert G. Grubel （1968）argue that subsidy policy is composed by the policy of reduce the foreign exchange reserves and international borrowings. Subsidy policy is only suitable for short-term balance 本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。