Buying Power and Price Consistency in Europe - Assignment Example

MAE102 - The Global Economy Name Institution PART A Economics gets defined as a branch of social science concerned with the understanding and awareness of the fabrication, depletion, and the know-how of parastatal institutions. It includes firms, and individual brand their choices on the distribution of limited resources to gratify their wants. The European central bank is amongst the 19 European Union countries that since the beginning of the 19th century introduced the euro system. Its obligations were to maintain and stabilize the buying power and price consistency in the Europe. The mission of the European bank is to observe and administer the credit bodies that gets marginalized in the euro and Non-Euro federations. Therefore, it adds value to the accountability and safety of the banking system and the firmness of the financial system within the euro and taking part of the member’s state. The roles of the European Central Bank include: the characterization and execution of the monetary authorities, behavior of external interchange processes, provision and administration of the peripheral authorities of the countries assortment management and smooth process and compensation structures and its advertisement. The European Central Bank has a vacant position in the Traineeship (Graduate Level), under the functional area of economics. Thus, the Directorate is seeking application from a recent graduate with a bachelor’s degree in Economics under the section of monetary authorities issuing strategic divisions. The roles will include tasks such as: - Sophisticated data handling and processing. -The assessment of creating the development with the behavior of monetary policies. -Commercial aptitudes’ qualifications and economic implementations. -Currency and acknowledgment magnifications for price developments and ultimately, the conduct of monetary policies. -Money and monetary authorities’ cycle. QUESTION Unemployment is a key challenge in Australia if the workers in this organization (ECB) gets laid off because the economy has lost strength and thus demand and supply our products have fallen? It is because if observed from the current trend of unemployment in the preceding years (e.g. 2007-2012) tends to be advanced than the consumer demand. PART B Real GDP growth rate real gross fixed capital formation growth rate YEAR USA GREECE AUSTRALIA 2001 21.7 25.6 23.4 2002 21.7 24.3 24.4 2003 21.8 27.0 25.9 2004 23.0 25.3 27.1 2005 23.7 20.9 27.4 2006 23.8 25.3 27.7 2007 22.6 26.6 27.9 2008 20.6 24.7 29.1 2009 16.5 18.3 28.0 2010 18.8 16.9 27.6 2011 18.8 15.8 27.2 2012 19.6 14.0 28.5 YEAR USA GREECE AUSTRALIA 2001 1.0 3.7 1.9 2002 1.8 3.2 3.9 2003 2.8 6.6 3.1 2004 3.8 5.0 4.2 2005 3.3 0.9 3.2 2006 2.7 5.8 3.0 2007 1.8 3.5 3.8 2008 -0.3 -0.4 3.7 2009 -2.8 -4.4 1.7 2010 2.5 -5.4 2.0 2011 1.6 -8.9 2.3 2012 2.3 -6.6 3.7 Table 1: (Data derived from www.worldbank.org/data) Table 1.1 Unemployment Rate Consumer Price Index (CPI) YEAR USA GREECE AUSTRALIA 2001 4.8 10.2 6.8 2002 5.9 10.3 6.4 2003 6.1 9.7 5.9 2004 5.6 10.5 5.4 2005 5.2 9.8 5.0 2006 4.7 8.9 4.8 2007 4.7 8.3 4.4 2008 5.9 7.7 4.2 2009 9.4 9.5 5.6 2010 9.7 12.5 5.2 2011 9.0 17.7 5.1 2012 8.2 24.2 5.2 YEAR USA GREECE AUSTRALIA 2001 2.8 3.4 4.4 2002 1.6 3.6 3.0 2003 2.3 3.5 2.8 2004 2.7 2.9 2.3 2005 3.4 3.5 2.7 2006 3.2 3.2 3.5 2007 2.9 2.9 2.3 2008 3.8 4.2 4.4 2009 -0.4 1.2 1.8 2010 1.6 4.7 2.8 2011 3.2 3.3 3.4 2012 2.1 1.5 1.8 Table 1.2 Table 1.3 Figure 1: (Data derived from www.worldbank.org/data) Figure 1.2 Figure 1.3 QUESTION TWO YEAR(JULY-JUNE) USA GREECE(EURO) AUSTRALIA 2000-2001 5.60 4.20 5.81 2001-2002 2.25 3.85 4.52 2002-2003 1.30 2.80 4.75 2003-2004 1.02 2.00 5.06 2004-2005 2.22 2.00 5.33 2005-2006 4.27 2.25 5.54 2006-2007 5.25 3.41 6.14 2007-2008 3.56 4.00 6.83 2008-2009 0.74 2.58 4.72 2009-2010 0.13 1.00 3.68 2010-2011 0.13 1.06 4.66 2011-2012 0.13 1.18 4.33 2012-2013 0.13 0.71 3.12 2013-2014 0.13 0.49 2.50 Table 2: Data derived from Figure 2: Data derived from ( www.rba.gov.au/statistics/tables/index.html#interest-rates (Table F13).) C.) Figure 3: Data derived from (www.worldbank.org/data/databank) Both GDP, as well as interest rates, is moving in the opposite direction this is because additional goods and services are being manufactured and produced and henceforth, their values have to be increased.The interest rate is falling because there are weak evolution and development plus insignificant inflation or uneven dropping rates of government bonds that result to steadily dropping, and the unemployment are both moving in the opposite direction.The unemployment rate is shifting down rather low because the country might be facing massive debts disaster that involves complex tax returns to inhibit a default. If the country’s government does not get financially established, formally the financial institutions and the entire monetary system will practice a decline in confidence resulting in a recession in the assessment of the standard market. CPI (consumer price index) is decreasing because consumers/buyers tend to choose less expensive alternatives goods and services. It reduces the degree amount of cost and rates of living thus rises the bargain of the superiority of the end user merchandises. The real gross fixed capital formation growth rate is increasing because the financial institutions and the government outlay are falling, and private sectors assets have also decreased and this record gets distinguished in the production area. Figure 3.1 The interest rate is falling due to the article on trade rate weakened thus the value of goods and services went little. These developments seem to return a mixture of inferior evolution in the ultimatum and more decisively significant growth in resources. It is also evident that the GDP growth rate is increasing due to the buying power this indications shows the rise of tax and revenue and also because of the increase in the development and ultimatum of development. The unemployment rate is falling due the decrease in purchasing power because of inflation, low wages and the demand for goods and services in high. The capital formation is increasing because there is an increase in unemployment rate and due to utilization of services as well as products a change in the acquisition of government inventories. The consumer is decreasing because of inflation. In conclusion is that the lower the price of goods and service the lower the consumer price index and vice versa. Figure 3.2 The interest rate is low and shifting downwards because of price appreciation or inflation and also because of misrepresenting monetary markets and stock assessment. The unemployment rate is low because there is poor market performance because of inflation and low wages because of the government debts. The GDP growth rate is also low and shifting downwards because of unemployment rate is high and yet the government have high-interest rates and Greece does not have the economic freedom.the consumer price index is low because the price of goods and services is not stable the prices keeps on depreciating and appreciating.The capital formation is high because there is too much monopoly from private sectors than the government itself. PART C 4.) The operation and handling of resources and banking system reserves. Through modification of the market authorization of the interest rates. It can also get accomplished through the short-term market rates strength in line with the investment taxes. Undertaking a directed amount of power acquisition that gets financed by the establishment of the central bank reserves 5.) The expected relationship between the GDP growth rate with the interest rate is that when the interest rate is descending the graph the GDP growth rate tend to ascend. However, it moves to the opposite direction hence if the interest rates are lower the GDP growth rate will rise and vice versa. The unemployment rate tends to be almost in a constant line as the interest rates are not stable in between the countries. It increases positively as the interest rates in shifting down to lower interest rate. The increase in the unemployment rate, the less the interest rates. With reducing interest rates, there is reducing capital formation on the other side the higher the interest rate, the lower the capital formation. The consumer price index is not much affected the interest rate because they are almost in a constant line. 6.) According to Glenn Stevens (2015), Monetary Policy can be implemented in Australian reserves by “Boosting demands than they used to be, lower rates of unemployment, increase the Australian dollar, to invest heavily on transportation so as to raise the supply to vacated land and lastly decrease land prices and making housing more affordable.” There will be domestic economic condition through the impact of commodity price and decline in bond yields and inflation expectations. It will attract foreign markets thus unemployment rates forecasts. This will be comprised in a positive way because the government of USA and its establishments is trying to have a monetary policy so that they can have a long-term investment from public and foreign sectors, establish high employment/labour power and stabilize prices of goods and services to reduce inflation and to have an economic freedom. Through the monetary policy of Greece it will boost the bank's liquidity, stability in the euro zone, confidence from foreign investors and also to power up the unemployment rate that is mostly affected and through this it will establish fair interest rates. REFERENCE Reserve Bank of Australia, 2001, Statistical Tables, Reserve Bank of Australia, 22 April 2014, World Bank, 2015, World Data Bank, World Bank, 23 April 2014, Michael Jander, 2015, RBA's Stevens says rate cuts now less effective but still worthwhile, abc news, 23 April 2015, www.abc.net.au/news/2015-02-13/rba-glenn-stevens-economic-testimony-to-parliament/6090624 The European Central Bank,2015,ECB, 21 April 2014, Read More