Economics of the United States, Australia and Spain - Assignment Example

The paper "Economics of the United States, Australia and Spain " is a good example of a macro & microeconomics assignment. The economy chosen for this part of the report is Spain – it is one of the European countries. The graph shows the graphical representation of the rate of growth of real GDP for the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows the graphical representation of the inflation rate for the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows the graphical representation of the unemployment rate for the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows a time series line graph representing the rates for growth in real GDP, inflation and unemployment in the United States from the year 2006 to the year 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows a time series line graph representing the rates for growth in real GDP, inflation and unemployment in Australia from the year 2006 to the year 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows a time series line graph representing the rates for growth in real GDP, inflation and unemployment in Spain from the year 2006 to the year 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows the comparative line graph for the rate of growth of real GDP of the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows the comparative line graph for the inflation rate of the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

The graph below shows the comparative line graph for the rate of unemployment of the United States, Australia and Spain for the years 2006 to 2014.

Source: Federal Reserve Bank of St. Louis, 2016.

Australia has been experiencing an economic downturn in recent years. This is evidenced by the declining trend in real GDP combined with a corresponding increase in the unemployment rate. The rates of inflation are also showing an upward trend.

In all the economies the rate of unemployment is higher than either the inflation rate or growth rate in real GDP.

Whereas the rate of unemployment has been on the decline in the United States it has been on a general increase in Australia and Spain.

Question 3

Question 3.1

According to Kothari & Barone (2006), disposable income is determined by subtracting net taxes from the real GDP.

Thus, Disposable income (YD) = Real GDP or (Y) - net taxes (T)

Question 3.2

Consumption(C) = Autonomous consumption, α + induced consumption

Induced consumption = marginal propensity to consume (MPC) * Disposable income (YD)

$7,600 = α + βYD = α + 0.7*$14,000

α = -$2,200

Therefore, Consumption(C) = 0.7*YD - $2,200

Question 3.3

Expenditure (AE) = Consumption(C) + Planned Investment (I) + Government Purchases (G) + Net Exports (NX)

Question 3.4

Unplanned investment (UI) = Real GDP or (Y) - Expenditure (AE)

Question 3.5

GDP

T

YD

C

I

G

NX

AE

UI

Y will

$18,000

$4,000

$14,000

$7,600

$4,500

$5,000

$4,500

$21,600

-$3,600

Fall

$22,000

$4,000

$18,000

$10,400

$4,500

$5,000

$4,500

$24,400

-$2,400

Fall

$26,000

$4,000

$22,000

$13,200

$4,500

$5,000

$4,500

$27,200

-$1,200

Fall

$30,000

$4,000

$26,000

$16,000

$4,500

$5,000

$4,500

$30,000

$0

Remain unchanged

$34,000

$4,000

$30,000

$18,800

$4,500

$5,000

$4,500

$32,800

$1,200

Rise

$38,000

$4,000

$34,000

$21,600

$4,500

$5,000

$4,500

$35,600

$2,400

Rise

$42,000

$4,000

$38,000

$24,400

$4,500

$5,000

$4,500

$38,400

$3,600

Rise

Question 3.6

Question 4

Question 4.1

The potential level of GDP, which is at $38,000 is $42,000 million. An expansionary policy will be required to move the economy towards potential GDP. An expansionary policy will help to increase aggregate expenditure from the current $35,600 million hence attaining the potential level of GDP (Barro, 2009). In particular, Lama (2013) argues that in such a case an expansionary fiscal policy should be adopted whose results will be increases in real output, aggregate demand and reduction in unemployment.
Question 4.2
Size of the multipliers = 1/(1-MPC) = 1/(1-0.7) = 3.333
Equilibrium GDP = Autonomous spending*Multiplier = $11,800*3.333 = $39,333
The stimulus package is less than the change in real GDP because the economy has a negative autonomous consumption (Blanchard and Roberto 2002). There is also the problem of crowding out since increases in government expenditure are usually financed by increases in taxation which will effectively reduce the investment expenditure by firms and consumer demand.