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Using the data in the table provided, comment on the relative performance of the Australian economy. Express your comments in terms of the indicators shown in the table.

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Introduction

Kin Kit Kwa Assessment 3: Research Assignment a) Using the data in the table provided, comment on the relative performance of the Australian economy. Express your comments in terms of the indicators shown in the table. Data shows % change Country GDP Unemployment Industrial output Consumer prices Retail sales Recent qtr annualised 1 yr ago Latest 1 yr ago Australia 3.5 3.7 6.1 7.0 1.6 3.0 5.4 Italy 1.1 0.5 11.9 10.9 -0.8 1.2 -0.9 Germany -0.1 0.5 10.3 9.6 -1.4 1.1 -3.2 Japan 2.0 2.6 5.5 5.5 6.4 -0.3 -3.0 USA 0.7 2.8 5.7 5.6 2.0 2.6 4.9 France 0.9 1.7 9.1 8.8 -0.1 2.0 -1.9 Canada 3.1 4.0 7.4 7.9 4.9 3.9 2.4 EURO area 1.2 0.9 8.5 8.1 -0.5 2.1 -0.4 Growth Domestic Product, (GDP) * The main measure of economic performance is Gross Domestic Product (GDP), this is the total market value of all goods and services produced. * GDP can be measured in three different ways, value of production, expenditure and the income approach * All these values of GDP indicate the performance of the Australian economy * Thus from the data from the table it is shown that the GDP has fallen 0.2% from 3.7% to 3.5% * Although this indicates a slight slow down in the economy as the GDP has fallen, compared to the other economies, it is the greatest GDP percentage change * Thus although Australia's economic growth has declined slightly it still remains strong and stable Unemployment * Unemployment is the proportion of the workforce who are unable to find a job * There are five categories of unemployment which include seasonable, structural, frictional, hard core and cyclical unemployment, which all contribute to the final unemployment rating of an economy * The data from the table indicates a 0.9% decrease in unemployment from 7% to 6.1% * This indicates that more people in Australia have been able to be employed * With employment increased this shows that firms are willing to employ more ...read more.

Middle

* As the trend goes downswing, upswing, downswing, upswing etc after this slight downswing Australia will rally and head towards an upswing. * As Australia has proven to be extremely stable in tough times (crisis), due to the consumer sentiment in Australia, its stability will be able to get Australia through this time of great uncertainty in the global market. * Both its sound monetary and fiscal policies and the structural reforms in the past has created a stable economic growth which will help in recovering from this downswing * It is only a matter of time before the global economies bounce back from their downswings, as consumer confidence will grow at the conclusion of the war * Therefore after the war, Australia will bounce back from this downswing and Australians will rally strongly to boost Australia's economic growth and GDP. * Thus over the next 6 to 12 months it is likely that Australia will reach a peak or at least be on in an upswing trend c) Explain clearly and in detail, the relationship between employment, economic growth and the business cycle * Employment, economic growth and the business cycle are all interrelated to each other * Employment directly effects economic growth which in turn alters the economy's GDP, thus altering the state in which the economy is situated in the business cycle * If employment is high this indicates that the economy is willing and able to employ a greater proportion of the workforce * When employment is high the employees will have a larger income to spend on both goods and services, thus consumption increases * With this increase in consumption this leads to producers able to make a larger profit thus inventories will fall, output, demand factors, employment and income will rise * The increase in employment will fuel the economy as the firms will be able to produce more goods and services, thus creating a greater profit to employ more employees * As GDP = C + I + G + (X - M) ...read more.

Conclusion

raised cash rate from 4.75% to 7.5% * Fiscal tightening in budget 1996-97 to focus on fiscal consolidation (reducing the structural budget deficit) through sharing roles of FP and MP * Tightening the FP when economy was slowing, offset by loosening MP * Fiscal tightening responsible for the decline in interest rates * Austral's economy grew strongly over 1999-2000 thus MP tightening e) Australia's economic growth has had its negative consequences, some of which present major challenges for the present and the future. Explain. * Australia's economic growth possibly might cause major challenges for the present and the future * But due to this strong economic growth this could lead to either lead to high inflation, an asset bubble forming, environmental effects and a decrease in international competitiveness Inflation * As Australia's consumer sentiment is reasonably strong, thus the stability of the economic growth, this could lead to high inflation. * Demand pull will drive up the prices of goods and services and raise inflation due to strong economic growth * With the increase in inflation the consumer confidence will diminish thus Australia will possibly go into a downswing or even a trough in the future. * Therefore due to Australia's strong economic growth if the proper precautions are not taken through either the RBA or the government, Australia's economic growth will become volatile due to an increase in inflation Housing bubble, asset bubble * Another scenario that could form is due to the high level of consumer spending as well * If consumers are confident about investing into the Australian market this could lead to a bubble forming and possibly bursting * A housing bubble, stock market bubble or any asset bubble may form * As consumers are willing to take out loans to invest into an asset if a bubble is formed and it "bursts" consumer confidence will be shattered * The consumers that have taken out loans to invest will find it difficult to repay the loan to the banks if a bubble bursts. ...read more.

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