The balance of payments is important in this situation because; when assessing the likely impact of a policy that will lead to a fall in the value of the currency, consideration must be given to it to estimate how it will affect the market for both exports and imports.
1983 was the first year of floating the Australian Dollar. This means it is worth what the rest of the world thinks it is worth. This is achieved by forces of supply and demand on the foreign exchange market (FOREX). This is related to the Marshall Lerner Condition. This shows the conditions under which a change in the exchange rate of a country's currency leads to an improvement or worsening of a country's balance of payments. Under a floating exchange rate, balance of payments disequilibrium should automatically be restored to equilibrium without the need for government policy.
The balance of payments and the current account deficit are important in managing the Australian economy. This is because they give the government and other institutions (such as the RBA) an idea of where the economy stands in relation to the rest of the world. Many economic decisions can be made based on the information received from figures collected.
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