Is there likely to be a contractionary or expansionary effect on the Australian economy from the...
Is there likely to be a contractionary or expansionary effect on the Australian economy from the depreciation of the AUD? Why?
Homework Answers
Depreciation of AUD will likely to have an expansionary effect on the Australian Economy.
Following is the reason:
The AUD depreciation shall make the Australian goods and services cheaper to the other countries of the rest of the world. These countries, in place of their domestic goods, start importing from Australia at cheaper rates. As a result, the exports of Australia will increase and the Australian Balance of Trade shall improve.
Australian Balance of Trade = Exports of Australia - Imports of Australia
AUD depreciation will raise the exports and thereby improves trade balance, Improved trade balance reflects that the economy is in a favorable position than other nations. So, this depreciation will have an expansionary effect on the Australian economy.
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