Economic Situation of International Monetary Fund - Assignment Example

Glоbаl Есоnоmy Your name: Institution name: Part A 1. Organisation The organisation that I have chosen is the International Monetary Fund (IMF). The IMF is a global organisation that is working to foster international monetary cooperation, facilitate global trade, secure financial stability, promote high employment and sustainable economic growth and reduce poverty among its member states. Through member states funds, other activities of the IMF include activities such as statistics analysis and keeping, demand for self-correcting policies and surveillance of its member-states economies. The IMF have been found to improve the economies of its member states. The mission statement for IMF is stated in the its Articles of Agreement: that to promote global economic cooperation, employment, international trade, and exchange-rate stability, including by making resources available to member states to meet their balance of payments needs. 2. Role of an economist An economist use his or her analytical skills and techniques in solving issues affecting the organisation. The role of an economist can be summarised as follows: 1) consistently examine the probabilities of transforming an ever changing economic environment into profitable business avenues; 2) an economist assists business planning process of an organization; 3) he carries cost benefit analysis; 3) he makes an economic analysis of the organisation in competition; 4) he involves advance management on public relations, trade and foreign exchange. He guide the organisation on its likely impact of changes in fiscal policy and monetary policy on the organisation’s functioning. 5) he conducts a detailed research on industrial market; 6) he create as well as use various econometric modelling tools to develop forecasts; 7) devise procedures and methods for obtaining data; 9) understand and interpret data; 10) evaluate past and present economic trends and issues. c. Question The question that I asked the economist is that why did the economist deliver forecasts conditional on a 2007-2009 crisis occurring? The reason for asking this question is that like everyone else, I am wondering how the global leading economists could miss the financial crisis and its impact on the global economy There are two main reasons that caused economists to miss the financial crisis of 2007 (Bill, 2009). Most organizations were unwilling to adopt ideas because it originated from unknown outsiders. A lot of investor ignored the previous housing bubble warnings, and they continued to ignore the warnings about trade deficit, national debts, currency risks and inflations (Bill, 2009). As for the government and academia, policy makers were found to rationalize their ideological decisions in ways that continue to ignore the financial crisis warnings rather than engage the economic experts who predicted the financial crisis in objective policy debates (Gordon, 2009). Also, the economic recession of 2007-2009 was unusual at least for the western economies (Buttonwood, 2015). , in fact the economic downturn was caused by financial shocks and collapsing demand rather than by deliberate anti-inflationary policies, as it was the case in economic recessions since 1945 (Bill, 2009). In western world case, only Japan among the developed countries is accustomed to this sort of economic downturns (Buttonwood, 2015), and in its case only because of the post-economic bubbles crash of the earlier 1990s. PART B Question 1 GDP (US$) 2011 2012 2013 Australia 1,388,066,356,092.40 1,534,425,905,762.80 1,560,372,473,125.20 Greece 288,803,062,127.70 249,525,371,463.20 242,230,333,768.90 USA 15,517,900,000,000.00 16,163,200,000,000.00 16,768,100,000,000.00 Figure 1 (data sourced from databank.worldbank.org) Unemployment Rate (%) 2011 2012 2013 Australia 5.10 5.20 5.70 Greece 17.70 24.20 27.30 USA 9.00 8.20 7.40 Figure 2 (data sourced from databank.worldbank.org) CPI (% growth) 2011 2012 2013 Australia 103.4 105.2 107.8 Greece 103.3 104.9 103.9 USA 103.2 105.3 106.8 Capital ($) 2011 2012 2013 Australia 0.49 0.47 1.21 Greece 1.71 1.12 1.48 USA 11.29 10.69 15.92 Figure 3 (data sourced from databank.worldbank.org) Figure 4 (data sourced from databank.worldbank.org) (3 marks) Question 2 Australia USA Greece Jun-13 2.75 0.09 10.07 May-13 2.75 0.11 9.07 Apr-13 3 0.15 11.58 Mar-13 3 0.14 11.38 Feb-13 3 0.15 10.95 Jan-13 3 0.14 11.1 Dec-12 3 0.16 13.35 Nov-12 3.25 0.16 17.8 Oct-12 3.25 0.16 17.4 Sep-12 3.5 0.14 20.91 Aug-12 3.5 0.13 24.34 Jul-12 3.5 0.16 25.82 Jun-12 3.5 0.16 27.82 May-12 3.75 0.16 26.9 Apr-12 4.25 0.14 21.48 Mar-12 4.25 0.13 19.07 Feb-12 4.25 0.1 29.24 Jan-12 4.25 0.08 25.91 Dec-11 4.25 0.07 21.14 Nov-11 4.25 0.08 17.92 Oct-11 4.75 0.07 18.04 Sep-11 4.75 0.08 17.78 Aug-11 4.75 0.1 15.9 Jul-11 4.75 0.07 16.15 Jun-11 4.75 0.09 16.69 May-11 4.75 0.09 15.94 Apr-11 4.75 0.1 13.86 Mar-11 4.5 0.14 12.44 Feb-11 4.5 0.16 11.4 Jan-11 4.5 0.17 11.2 Dec-10 4.5 0.18 11 Nov-10 4.75 0.19 11.5 Oct-10 4.5 0.19 10.9 Sep-10 4.5 0.19 10.5 Aug-10 4.5 0.19 10.2 Jul-10 4.5 0.18 9.24 Jun-10 4.5 0.18 9.23 Average 2010/2011 4.5625 0.163333 11.45083 2011/2012 4.416667 0.0975 20.51833 2012/2013 3.153846 0.142308 16.27615 2b. Figure 5 (data sourced from databank.worldbank.org) Question 3 GDP is a measure of value of the products that are produced in a country annually. GDP is used to measure the economic growth. While, CPI is a proxy of GDP deflator. If CPI in a country increase more than the country’s GDP (Abel and Bernanke, 2005), the real GDP will be seen to decline and also inflation will increase and living standards will decline in the country. Unemployment rate is the rate of unemployed person per labor forces. Based on Phillips curve, mild inflation will reduce unemployment rate (Abel and Bernanke, 2005). Because producers will invest more when price increases.GDP growth will create inflation and more employment. In my conclusion, the interest rate is found to be affected by the three variables i.e. GDP, unemployment and inflation, CPI. PART C Question four. Question five i) Interest Rate vs GDP ii. Interest rate vs Investment growth Change in interest rates affects different types of investments. Rising interest rate will drive investment down, and falling rates of interest rate will drive investment up especially in bond market (McBride, 2010). As a general rule, when the iii. Interest rate vs unemployment and inflation When the interest rate drops, consumers spending will increase, and this in turn will stimulates the economy growth (McBride, 2010). Thus inflation will reduce. And verse versa. In general, there is a trade off between the evil of unemployment and inflation. As the country’s economic growth is seen to slow down, the risk of inflation will not be experienced, but unemployment will be seen to rise (McBride, 2010). While as the country’s economy picks up, more and more people find employment, so unemployment is seen to drop, but the inflation looms as a risk. Question 6 Reasons for Australian monetary policy The reason for RBA cutting down on interest rate is to help stabilize the Australia economy. The RBA policy is also the primary determinant of inflation and inflation expectations over a longer period of time, and inflation trends is seen to affect the interest rates. In addition, cut in interest rate have been seen will increase the economic growth after a slowdown. Compare and contrast The reduction in in Greece interest rate is a reasonable idea because it will give the country more time and room to maneuver problems that affect the country right now. But it is not such a great idea. Low interest rate in in Greece wouldn’t have a major influence on country’s economy and this will prove to be costly for creditors in the long term . In Australia since 2008, the country’s economic growth has been seen to be slow, and the rate of unemployment has increased. The RBA cut the interest rate to lowest possible, so that to stimulate the economy. But this is no longer an option. While, Australia Interest rate reduction with stimulate economic growth for a short term. As an interest rate is essentially the cost of money, a lower interest rate will be able to reduce the cost of borrowing for Australian consumers (Gordon, 2009). This way, consumers will have a greater access to money and they will be able to increase their spending. Thus stimulating the economy (Gordon, 2009). Therefore, Reserve Bank has no choice but to cut interest rates to stop the currency from being overvalued. The interest rates in the US is very low; near zero in nominal terms and negative in real terms. This is a deliberate policy by the US central bank to discourage saving and encourage borrowing (Gordon, 2009). This way have been see as a way of booting the country’s stock market and thus as creating a wealth effect for individuals, and boosting the confidence. References Abel, Andrew B and Bernanke, Ben S. (2005). Macroeconomics (5th ed.). Pearson Addison Wesley. Bill E. (2009). How and why the global economic crisis happened. Billemmott. Retrieved from http://www.billemmott.com/article.php?id=246 Buttonwood. (May 1st, 2015). what’s wrong with finance. The economist. Retrieved from http://www.economist.com/blogs/buttonwood/2015/05/finance-and-economics databank.worldbank.org Gordon, R. J. (2009). Productivity, Growth, Inflation and Unemployment, Cambridge University Press, 2004 McBride, B. (2010). "Real GDP Growth and the Unemployment Rate." Calculated Risk. 11 Oct. 2010. Web. 05 Dec. 2010. Read More