Gross Domestic Product Growth Rate in Australia - Assignment Example

The paper "Gross Domestic Product Growth Rate in Australia" is a wonderful example of an assignment on macro and microeconomics.

1. Annual data of real GDP growth rate, the inflation rate, and the unemployment rate for Australia, the United States, and China over the past ten years (2003-2012)

• The United States

United States

Year

Real GDP

Inflation Rate

Unemployment Rate

2003

2.5

2.3

5.8

2004

3.4

2.7

5.5

2005

3.1

3.4

5

2006

2.6

3.2

4.6

2007

1.9

2.8

4.6

2008

-0.3

3.8

5.8

2009

-3.1

-0.4

9.3

2010

2.4

1.6

9.6

2011

1.8

3.2

8.9

2012

2.2

2.1

8.2

2013

2.1

1.5

8.1

Table: (McMahon, 2014, p.1)

• Australia

Australia

Year

Real GDP

Inflation Rate

Unemployment Rate

2003

3.1

2.7

6

2004

4

2.3

5.1

2005

3.1

2.7

5.1

2006

2.7

3.5

4.9

2007

4.3

2.3

4.4

2008

2.6

4.4

4.2

2009

1.4

1.7

5.6

2010

2.7

2.9

5.2

2011

2.4

3.3

5.1

2012

3.5

2.2

5.2

2013

2.9

2.5

5.7

Table: (Statista, 2014, p.1)

• China

China

Year

Real GDP

Inflation Rate

Unemployment Rate

2003

10

1.1

4.3

2004

10.1

3.8

4.2

2005

11.3

1.8

4.2

2006

12.7

1.6

4.1

2007

14.2

4.8

4

2008

9.6

5.9

4.2

2009

9.2

-0.7

4.3

2010

10.4

3.17

4.1

2011

9.3

5.5

4.1

2012

7.6

2.6

4.1

2013

7.6

2.5

4.1

Table.(Index Mundi, 2014, p.1)

(b) What evidence does the data provider of the countries experiencing the economic downturn in recent years?

The data as well as the charts show the economic downturn from the negative rates and downward sloping line graphs. For example, the inflation rate of China went down to -0.7 in the year 2009 thus indicating that the country experienced an economic downturn forcing the rate to go down tremendously. In addition to this, the real GDP rates of the United States were severely affected in the years 2008 and 2009 where they depicted -0.3 and -3.1 respectively. This could be attributed to the low inflation rates, which were about -0.4 during the same period.

On the basis of the data collected, what similarities and differences are there in the performance of the economies?

From the data collected over the eleven-year period, there are several similarities and differences in the performance of the economies of the three countries. For instance, the unemployment rates of the United States and Australia are higher than the GDP and inflation rates of the two countries. This is not the case for China, whose unemployment rates are lower than its own GDP and inflation rates. Coincidentally, China’s unemployment rate is lower than that of Australia and the United States. This, therefore, indicates that China’s economy is performing well when compared to other countries. United States is a poorly performing economy given its low GDP and inflation rates with high rates of unemployment.

Describe the general relationship you observe between GDP growth, inflation, and unemployment rates.

Australia’s inflation rates and the real GDP rates are close to each other, and at times interlocking while its unemployment rates are far on the top. China, on the other hand, has a big margin between its real GDP and inflation rates, unlike the other two countries whose GDP and inflation rates are simultaneous. The real GDP rates of the United States are very low while its unemployment rates are very high thus depicting poor economic performance. It can be thus be concluded that GDP growth rates could affect the unemployment rates of a nation (Parry and Kemp, 2009). From the charts, high GDP growth rates lead to low unemployment rates as for the case of China while low GDP rates lead to high unemployment rates as it is in the case of the United States.

Question 2

a) Compute Aggregate Expenditure and the equilibrium level of real GDP. [2 Mark]

Answer:

Aggregate Expenditure = Consumption+ Planned investment + Government purchases +Net Exports (Haworth,n.d, p.1)

Real GDP

Consumption

Planned Investment

Government Purchases

Net Exports

Aggregate Expenditure

1000

1000

100

150

-50

1200

2000

1900

100

150

-50

2100

3000

2800

100

150

-50

3000

4000

3700

100

150

-50

3900

The equilibrium level of Real GDP=Y=C+I+G+(X-M)

MPC= ∆C/ ∆Y= (1900-1000)/(2000-1000)

=900/1000

=0.9

b) If potential GDP is $4000, then by how much should government spending increase so that the economy can move to the full employment level of GDP? [2 Mark]

=4000x0.9

=3600

Increase government spending by= 3900-3600

                                                =$300.

1. c) Show both old and new equilibriums in a 45-degree line (Keynesian cross) diagram using information from the above table and your answers to the questions (a) and (b). [2 Marks]

1. d) Explain why the higher government spending may not help reach full employment if consumer confidence and business sentiment decline due to a depressed economic environment. Explain your answer using the same diagram in part (c). [2 Marks]

Higher spending by the government may not help it attain a situation of full employment given the depressed economic environment caused by a decline in consumer confidence and business sentiment. This is because of the Keynesian multiplier effect whereby every amount of money spent on investment will lead to increased expenditure. In addition to this, “Keynes argues that investors need not equal savings, since investment is a function of the expected rate of return as well as the interest rate” (Harcourt, 2014). As such, the economy will always operate under a situation of low employment and not being able to attain full employment. This is depicted by the lower curves of consumption plus investment and government spending when compared to the consumption curve only.