On Australia Housing Situation
Background of Case
On Australia’s housing situation
“The RBA’s review shows that Australian banks have tightened their lending standards and have room for further tightening, but currently we do not see larger impacts on delinquencies. Current rates of people not being able to make their mortgage payments are low but may quickly change in an economic downturn.”
“Those countries which managed to avoid a severe downturn after 2008 by continued massive private-sector borrowing, thereby overexpanding their private debt mountains. They’re the zombies-to-be. At some point they’ll have a financial crisis as a direct result.
Fresh credit is an essential part of demand. When a country’s net credit creation goes negative, i.e. when its private and public sectors combined are trying to pay down debt on a net basis, the supply of circulating money shrinks. This can set off a “debt deflation” cycle, involving a sudden drop in aggregate spending on goods and services, a contagious wave of bankruptcies, and a severe recession, or even a depression.”
Critics (Scheule (2006) and Keen (2017)) and others have argued against the Australian Government’s and RBA’s focus on riding the housing bubble to increase economic growth. You have been tasked by the House of Representatives Economics Committee to undertake the following:
- Using data drawn from the Australian Bureau of Statistics (ABS), present diagrams showing Australia’s economic growth from 2011 to 2017. Describe the trend and examine the reasons behind the cyclical movements. You may use either quarterly figures or annual figures. ORDER YOUR PAPER NOW
[(35 marks = KS1.1 (5 marks) + KS1.2 (25 marks) + PC3.1 (5 marks)]
- Discuss and critically analyse the fiscal and monetary policies employed between 2011 and 2017 and how they have affected Australia’s housing market and subsequently Australia’s economic growth. Note: You do not need to cover all policies. Just select those that are appropriate.
[65 marks = KS1.1 (10 marks) + HO2.1 (25 marks) + HO2.2 (25 marks) + PC3.1 (5 marks)]
TOTAL MARKS: 100 (which will be adjusted to ‘out of 40’)
Some key elements:
- For fiscal policy, briefly discuss policies influencing Australia’s housing market and how these policies relate to economic growth.
- For monetary policy, briefly discuss how changes in the cash rate have impacted Australia’s housing and economic growth.
- It is essential to illustrate your analysis with aggregate demand-aggregate supply models. Other appropriate models may be used but not essential.
- In your discussion, it is imperative that you critically evaluate the above statements put forward by Steven Keen and Harry Scheule.
- Discussion and analysis must be supported and referenced using peer-reviewed journal articles.