Describe about the Economic Analysis of Australia for Biggest Mixed Market.
World’s one of the biggest mixed market is located in Australia. The Australian economy is characterized by a booming service sector. More than seventy percent of the economy’s income comes from here. The country is standing at the 12th spot according to its Gross Domestic Product (GDP). The industrial sector provides 21 percent of the country’s income and the agricultural sector produces less than 5 percent. The essay concentrates on Australia’s achievement of high performance status. The purchasing power parity (PPP) of the country is 21st in the world. Australia’s economy has become strong overtime.
Production output performance analysis:
According to Fenna (2013), by adjusting the value of GDP with respect to inflation, the Real GDP is calculated. It is used for measuring the level of output of an economy adjusted by the level of price. It is applied for measuring a country’s economic improvement and strength. Australia’s real GDP was $747.2 billion USD in the year 2006, which increased rapidly to 1.56 trillion by 2013. Hence, the measurement shows that the rise in production and economic improvement are one of the strongest in the world. The Global Financial Crisis of 2007 was unable to reduce the productivity of the country. In 2009, the economy of Australia faced the after effects of the crisis, for a short period. According to Allard et al., (2014), after reaching the peak point, the country faced decline in the production curve. In previous year the value of the economic outputs of the country was $1339.54 billion USD. In the quarter of June the country has shown a 0.5 percent growth rate which is lower than the previous rate of 1 percent. Since the second quarter of 2015, this was the country’s weakest growth rate. According to the Reserve Bank of Australia, a stagnant investment is the reason behind this. There was a fall in the number of new investments entering the market of Australia in this quarter.
Per capita Gross Domestic Product (GDP) is used for measuring the average output level of a country. The value of per capita GDP is gathered by dividing the total GDP of the country with total population of the country. It is a measurement of per head wealth accumulation. It has many limits, among which the major one is that the per capita GDP cannot show the level of income concentration. Gini coefficient can be used here in order to understand the inequality situation along with the per capita GDP. The country has a per capita GDP level of 54717.7 USD, which is greater than most of the developed countries. Australia’s Gini coefficient is 0.331 that shows slow level of inequality in income.
As stated by Downes, Hanslow and Tulip (2014), the economy of Australia has faced a boom since the middle of the last decade. This happened because of the increasing mining investment. This has increased the level of exports in the Australia. This increase was the reason behind Australia’s improvement regarding employment. The minimum wage for the workers increased due to this reason. Due to a trickledown effect, this had helped the other industries of the country.
The Australian government had to make this growth sustainable, otherwise, once the prices of the commodities goes down along with the mining investments settling down, the growth rate will fall. For his purpose the government of Australia has taken many policy measures. Among these, increasing labour productivity is of high importance. The government has urged to adopt technological progress to increase the average productivity of the labour. The government also played a huge role in providing investments to the domestic businesses. Government expenditure has increased in this period. The private investments are lured in by the government policies. This also reduces unemployment as the new businesses absorb the unemployed labour force. According to Basin (2016), the Australian government has created courses, which will create a skilled labour force in the country. The education system and vocational trainings are designed to facilitate the government policies. This will ensure sustaining productivity increase.
Labour market analysis:
According to Eichengreen and Hatton (2012), the unemployment rate of a country is the best measurement of unemployment in its economy. The rate of unemployment is calculated by dividing the total number of unemployed persons by the total no persons in the labour force. As the definition of unemployment states, those are considered as unemployed who are not absorbed in the process of production but are looking for one. An economy generally incorporates three types of unemployed persons. The types are: cyclical unemployment, frictional unemployment, and structural unemployment. The ups and downs in the business cycle are the reason of cyclical unemployment. While changing jobs, people are unemployed for a short period of time. This is called the frictional unemployment. The structural unemployment occurs when a mismatch between the required skills and offered skills occur.
The Reserve Bank of Australia has stated that the country has shown improvement in the employment scenario in the later part of the last decade. According to Svensson (2015), in the month October, 2015 the unemployment rate was approximate six percent which reduced to 5.6 percent in August, 2016. The participation rate has also decreased in Australia by 0.1 percent from the previous figures of 64.5 percent. Hence, the last few months shows an improvement in the employment market of Australia. But before this low unemployment rate occurred, there was an undercurrent of structural unemployment prevailing in the country which was caused by changes in technologies of production. According to Golebiowska, Elnasri and Withers (2016), the new technologies and machineries were hard to work with for the existing labour force. This created a demand for skilled labour force in the Australian economy. People were taking time to adjust with the new technologies. It was the reason for frictional unemployment in Australia. During the period of the Global Financial Crisis, many people faced cyclical unemployment. Those who were working in the exporting businesses felt the blow most in 2009.
According to Cheung, Manning and Moore (2014), the board which controls the economic decisions in the country took several policies according to the reasons of unemployment they found. The government of Australia reduced the amount of tax to be paid for the citizen to reduce the unemployment rate in the country. The government projects included creating a pool of skilled workforce. For this purpose several courses were created by the government. The trained persons were supposed to understand better the new technologies which were being used in the production process. The vocation trainings were targeted towards achieving a better understanding of the new technologies of production. Those companies who were operating in the country created new strategies and implemented those which were in the favour of the government’s decisions. The entrepreneurship programs that have been proposed by the government were designed to absorb more from the labour force. This will increase the goods and services basket of the country. The newly introduced technological progress will help the initiative.
The government policies helped the country to grow over the problems regarding unemployment. As stated by the Australian Bureau of Statistics, the policy measurements taken by the government of Australia are working and showing positive effects. The unemployment rate of the country was reduced and was contained at 5.1 percent. The country has managed to keep the unemployment level contained.
Price level analysis:
According to Chen, Turnovsky and Zivot (2014), to understand the economic condition of the country inflation can be used as another variable. Inflation is that state of the economy where the consumer prices rise consistently, or the purchasing power of the Australian Dollar falls persistently. There are many reasons behind an occurrence of inflation, among which rise in money supply beyond rise in availability of goods and services are most common. Inflation rate is the rate at which this change is taking place. In general, there are two types of unemployment, namely, demand-pull inflation and cost-push inflation. Rising demand for goods and services beyond availability causes demand-pull inflation. On the other hand, increasing cost of production results in cost-push inflation. The cost of production incorporates the rent being paid to the factors of production.
Figure 1: Demand-pull inflation in an economy.
Source: As created by the author.
The figure above demonstrates the rise in price level due to the increase in demand by customers which shifts the demand curve rightward. The price, thus, increases from P to P’.
According to Mikolajun and Lodge (2016), in the case of cost-push inflation the supply curve retracts as the cost of production increases as given in the figure below:
Figure 2: Cost push inflation in the economy.
Source: As created by the author.
According to Argy and Nevile (2016), the rise in the cost of inputs of a production process increases the cost of production of the goods and services. As the figure shows, the supply curve moves backwards due to this and the price increases from P to P’. The Australian Bureau of Statistics stated that the consumer prices of the country rose by 1.3 percent. The figure is lower than most of the economies in the world. Shortage of foods is the main reason of inflation in the country. The supply of foods decreased due to floods and other causes. This triggered cost-push inflation in Australia.
The Australian Bureau of Statistics (2016) stated that the country’s inflation rate was 4 percent during the time period of 2006-07. After that the fluctuations were present in the inflation rate. In the year 2009, Australia showed 5 percent inflation. Presently, Australia’s inflation rate is very low. The situation is given in the figure below.
Figure 3: Inflation rate scenario in Australia over last ten years.
Source: Australian Bureau of Statistics.
According to Siklos (2013), a 2-3 percent inflation rate has been planned by the Reserve Bank of Australia for the country. The real rate of interest in the country is way below the planned rate of inflation. The weak economy and high unemployment is the reason behind this. The unemployment rate of Australia which is stuck near 5 percent level is playing a crucial role in weakening the economy. According to Arnone and Romelli (2013), it ensures that the citizens of Australia are not being able to increase consumption at a consistent rising pace. The government also had implemented a policy of increasing the rate of interest in the country. This was a counter measure of the upcoming boom in the economy. This discouraged spending by the consumers. It made the domestic economy weak which decreased importing the input materials. Production got halted and the produced goods were not being sold causing inventory accumulation. Low spending the by the citizen and inventory accumulation are the reason the economy got weaker than before.
As stated by Plumb, Kent and Bishop (2013), to encounter the inflation scenario of Australia, the authorities has taken the various steps. The government created policies to create a skilled workforce for increasing the productivity. This will increase the efficiency of the production process. The government has created training process to ensure this process. The fiscal and monetary policies taken by the Australian government are there to get a positive response from the inflation rate. The monetary policy includes increasing the supply of money in the economy by creation of channels of employment. This increased government expenditure will increase the aggregate demand. This is designed to put the inflation rate back on the intended track. The government is also trying to reduce the interest rate. This will result in increasing investment in the economy.
The macroeconomic variables like inflation, interest rate, national income, and unemployment are highlighted in this essay. In conclusion it can be said that Australia, one of the large and strong economies, has several economic issues. The government of the country has taken various measures to meet the economic targets set by the authorities. These policy measures are created to strengthen the economy of Australia. The government has focused on technological progress to make the economic design come true.
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