Essays on Gross Domestic Product Growth Rate in Australia Assignment

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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. 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]   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.

References

Harcourt, M 2014, The Keynesian Theory, viewed 7 September 2014,

< http://www.cliffsnotes.com/more-subjects/economics/classical-and-keynesian-theories-output-employment/the-keynesian-theory>

Haworth, B N.d, The Aggregate Equilibrium Model, viewed 7 September 2014,

< http://econpage.com/202/handouts/AEmodel/equilibrium-solution.html

Index Mundi 2014, China Unemployment rate, viewed 7 September 2014,

< http://www.indexmundi.com/china/unemployment_rate.html>

McMahon, T 2014, Historical Inflation Rates, viewed 7 September 2014,

< http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx>

Parry G., and Kemp S 2009, Discovering Economics Tactic Publications, South Perth.

Statista 2014, Gross domestic product (GDP) growth rate in Australia 2014, viewed 7

September 2014, < http://www.statista.com/statistics/263602/gross-domestic-product-gdp-growth-rate-in-australia/>

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