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Questions:
1. The Government is contemplating a tax cut of \$20 billion to boost the economy which is experiencing some recessionary pressure. Use the aggregate expenditure model to analyse what will happen to the equilibrium GDP. If the marginal propensity to save is 0.2, how  uch would it influence the equilibrium GDP? Explain your answer.

2. Starting from an initial long-run equilibrium, use the dynamic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in investment expenditure. What policy action would the central bank take in such circumstance?

Nominal GDP of nation represents the monetary values of all goods and services produced in a year where goods are valued in terms of current market price. Real GDP on the other hand in price adjusted measure of total output in a nation. A fixed base year is used to compute real GDP of the nation. An increase in nominal GDP tend to increases the value of real GDP given the price level is fairly stable (Goodwin et al. 2015). For Australia, the seasonally adjusted real GDP and nominal GDP constitutes a similar upward rising trend. The real GDP lies above the nominal GDP implying a decline in the price level. So far as the growth rate is concerned, similar trend in observed in percentage change in real and nominal GDP. The nominal GDP growth thus has a positive influence on real GDP.

Table 1: Inflation, unemployment, gross capital formation and expense in Australia

 Australia Year Inflation Unemployment Gross capital formation Expense 1991 3.222679913 9.579999924 24.22299997 23.1593187 1992 0.985915493 10.72999954 22.3441433 24.42396422 1993 1.813110181 10.86999989 23.59408776 24.94978282 1994 1.894977169 9.720000267 24.25033711 25.06025128 1995 4.638135783 8.470000267 25.93691424 25.37035171 1996 2.6124197 8.510000229 24.77917213 24.53408057 1997 0.250417362 8.359999657 24.7971273 23.78070009 1998 0.853455454 7.679999828 25.46564777 21.32156079 1999 1.465428277 6.869999886 26.09806763 24.53381643 2000 4.475183076 6.28000021 26.27650167 24.07095833 2001 4.380841121 6.739999771 23.42282754 26.3303033 2002 3.00317105 6.369999886 24.39965103 26.44611444 2003 2.770735241 5.929999828 25.9254454 25.8340018 2004 2.343612335 5.389999866 27.06087433 25.67329182 2005 2.668732782 5.03000021 27.4254073 25.61578597 2006 3.538487339 4.78000021 27.65794856 24.92062761 2007 2.332361516 4.380000114 27.84585816 24.47849996 2008 4.352643242 4.230000019 29.12600769 24.31734064 2009 1.82011224 5.559999943 27.90602567 26.482355 2010 2.845225682 5.210000038 27.5528937 26.77540331 2011 3.303850156 5.079999924 27.11341551 25.96923518 2012 1.762780156 5.21999979 28.32663311 26.24604405 2013 2.449888641 5.659999847 28.44050751 25.98320556 2014 2.487922705 6.070000172 27.20492597 26.40565053 2015 1.508366722 6.059999943 26.73764514 26.86225739 2016 1.276990945 5.71999979 25.53702298 27.03986551

(Source: data.worldbank.org)

Table 2: Inflation, unemployment, gross capital formation and expense in China

 China Year Inflation Unemployment Gross capital formation Expense 1991 3.556686 4.889999866 35.8658256 1992 6.353981 4.389999866 39.83722181 1993 14.61008 4.329999924 44.24292895 1994 24.25734 4.340000153 40.94850525 1995 16.78945 4.550000191 39.68463866 1996 8.312847 4.590000153 38.37235534 1997 2.787113 4.599999905 36.33715573 1998 -0.84954 4.730000019 35.67868627 1999 -1.35851 4.699999809 34.96477981 2000 0.256518 4.53000021 34.42965254 2001 0.719808 4.53000021 36.42225471 2002 -0.76672 4.409999847 37.07754181 2003 1.164518 4.300000191 40.63154952 2004 3.888816 4.300000191 42.89449013 2005 1.813995 4.139999866 41.3912114 2006 1.466078 4 40.93327269 2007 4.767211 3.75999999 41.46315155 2008 5.843024 4.360000134 43.26637446 2009 -0.70063 4.288000107 46.44130408 2010 3.325775 4.199999809 47.61226023 2011 5.410918 4.340000153 47.68586754 2012 2.643052 4.46999979 47.23453111 2013 2.628086 4.539999962 47.38775199 12.03064 2014 2.000345 4.592999935 47.00771662 16.22836 2015 1.437025 4.605000019 45.40088041 16.42522 2016 2 4.649000168 44.31060661

(Source: data.worldbank.org)

Table 3: Inflation, unemployment, gross capital formation and expense in South Korea

 South Korea Year Inflation Unemployment Gross capital formation Expense 1991 9.3 2.410000086 41.37406165 13.3792593 1992 6.306306 2.50999999 38.48519801 13.62914127 1993 4.745763 2.880000114 37.47954115 13.33489425 1994 6.256742 2.480000019 38.5391289 13.41987061 1995 4.479695 2.059999943 39.0032945 13.29596568 1996 4.923429 2.049999952 39.68096241 13.51745684 1997 4.446869 2.609999895 37.42467905 13.33786873 1998 7.51208 6.960000038 27.76189528 15.64550787 1999 0.811448 6.340000153 30.91629559 15.22116193 2000 2.265333 4.420000076 32.9417149 15.78950954 2001 4.06642 4 31.55958695 16.77824298 2002 2.762511 3.279999971 30.93958059 15.90158752 2003 3.514879 3.559999943 32.01490957 17.86543884 2004 3.590591 3.670000076 32.11707412 17.80394405 2005 2.75409 3.730000019 32.16306462 18.54888028 2006 2.241847 3.450000048 32.70068793 19.31135155 2007 2.534847 3.230000019 32.57953116 18.82266703 2008 4.673796 3.160000086 33.01850389 19.14187425 2009 2.756686 3.640000105 28.4656577 20.20127708 2010 2.939181 3.720000029 32.02287506 18.42542179 2011 4.025846 3.410000086 32.95883261 18.90133685 2012 2.187221 3.220000029 31.00122857 25.75391299 2013 1.301377 3.119999886 29.10221685 25.23258321 2014 1.2748 3.529999971 29.27691005 24.84029804 2015 0.706963 3.630000114 28.91811192 24.89953205 2016 0.97 3.710000038 29.20956543 24.98822488

(Source: data.worldbank.org)

Table 4: Inflation, unemployment, gross capital formation and expense in Japan

 Japan Year Inflation Unemployment Gross capital formation Expense 1991 3.29806 2.09 33.93257 1992 1.707359 2.16 32.16449 1993 1.267416 2.51 30.7764 1994 0.68794 2.89 29.54486 15.23929 1995 -0.12348 3.15 29.88286 15.22473 1996 0.131872 3.35 30.86515 15.1676 1997 1.761462 3.39 29.951 14.63257 1998 0.663269 4.11 28.51517 20.39496 1999 -0.32945 4.68 27.11881 17.542 2000 -0.65302 4.73 27.30713 17.34241 2001 -0.74006 5.04 26.56051 16.46877 2002 -0.92349 5.37 24.6555 16.36226 2003 -0.25654 5.25 24.39723 15.97741 2004 -0.00857 4.71 24.34862 15.34087 2005 -0.28295 4.42 24.74947 15.31547 2006 0.249355 4.13 24.74863 15.07756 2007 0.060039 3.85 24.48345 14.17419 2008 1.380079 3.98 24.54785 15.46619 2009 -1.35284 5.08 21.32367 18.40497 2010 -0.71998 5.07 21.29749 17.39946 2011 -0.26763 4.55 22.1033 18.8211 2012 -0.05194 4.35 22.65442 18.33817 2013 0.34644 4.03 23.19091 18.34244 2014 2.761954 3.58 23.9161 17.77248 2015 0.789518 3.33 24.0053 17.14929 2016 -0.11667 3.13 23.56428 16.93938

(Source: data.worldbank.org)

Table 5: Inflation, unemployment, gross capital formation and expense in United Kingdom

 United Kingdom Year Inflation Unemployment Gross capital formation Expense 1991 7.532649 8.55 19.59018 34.78408 1992 4.261548 9.78 18.83031 37.64063 1993 2.5065 10.35 18.37509 37.36898 1994 1.97849 9.65 19.37552 37.07977 1995 2.656452 8.69 18.63725 35.24609 1996 2.481101 8.19 18.84126 34.02947 1997 1.777946 7.07 18.01168 32.9629 1998 1.588924 6.2 18.62629 32.36898 1999 1.335407 6.04 18.0644 32.16804 2000 0.785269 5.56 18.46573 32.54879 2001 1.235895 4.7 17.8566 33.12253 2002 1.256192 5.04 17.76296 34.23308 2003 1.362922 4.81 17.38414 35.58366 2004 1.344596 4.59 17.02408 36.16253 2005 2.049668 4.75 17.21945 36.6333 2006 2.333528 5.35 17.59422 36.70877 2007 2.321036 5.26 18.11053 36.92255 2008 3.613499 5.62 16.99368 39.87988 2009 2.166231 7.54 14.42836 42.31741 2010 3.285714 7.79 15.67951 43.10665 2011 4.48424 8.04 15.55917 41.83205 2012 2.82171 7.89 15.75748 42.46923 2013 2.554547 7.53 16.35796 40.15876 2014 1.460192 6.11 17.11075 39.28458 2015 0.050021 5.3 16.97235 38.41641 2016 0.641613 4.81 16.96858 37.29929

(Source: data.worldbank.org)

Different macroeconomic variables are generally interrelated such that change in one variable has influence on other indicators as well. An increases in government expense, if made in favor of physical assets then capital formation rises (Agénor and Montiel 2015). An expansion in capital base in turn creates more employment opportunity and hence reduces unemployment.

In Australia, government expenditure remains at a stable state.  The gross capital formation in the economy an economy shows an upward trend. Gaining support from government expense and capital formation Australia has accounted a steady decline in unemployment rate.  In China, the gross capital formation remain at a fairly stable state which helps to stabilize the unemployment rate. In South Korea, unemployment rate picked during 1998. During this time, the gross capital formation declines as well.  In this nation, the gross capital formation has an overall declining trend. Government expense though increases but the trend shows the expenditure is not in favor of capital investment.  Consequently, unemployment has a slow but increasing trend. In Japan, the decline in expense and capital formation unemployment rises. However in recent year, because of an increase in capital formation an expense unemployment records a slight decline. UK has recorded a steady decline in unemployment rate. The high government expense and stable capital formation contributes to a decline in unemployment.

The relative value of currency plays an important role in determining trade balance of a nation. An increasing value of currency by raising price of exported goods adversely affect trade balance. In times of currency depreciation on the other hand helps to improve trade balance by increasing export (Bernanke, Antonovics and Frank 2015). This relationship between exchange rate and trade balance is evident for Australia’s trade relation with all the three nations.

In the aggregate expenditure model, fiscal policy tool is used to influence real GDP. Government adjusts taxes or government purchase to counter recession or other economic shocks.

A decline in taxes lead to an increase in government expenditure by raising purchasing power of people. At the initial phase, the increases in consumption following a tax cut is less than the proportion of tax change , the aggregate expenditure shifts by a magnitude less than the changes in tax (Heijdra 2017). The government propose contemplating a cut in tax rate by \$20 billion. Given the marginal propensity to consume is 0.2, there will be a rightward shifts of the aggregate expenditure curve by (\$20 *0.2) = 4 billion.

AE curve represents the initial aggregate expenditure. The 450 line shows the planned expenditure A cut in tax rate of \$20 bn shifts the AE curve up by autonomous taxes of \$20 bn times the marginal propensity to consume 0.2. The new aggregate expenditure curve is AE1. The difference between AE and AE1 are \$4bn. The equilibrium determined at the intersection of actual expenditure and planned expenditure shifts from E to E1. Corresponding to new equilibrium, the real GDP increases from Y* to Y1.

The state of macroeconomic equilibrium is determined from the position of aggregate demand and aggregate supply curve. Corresponding to the equilibrium, the real GDP and price level in the economy (Johnson 2017).  The long run aggregate supply curve differs from the short run aggregate supply curve and hence, the adjustment process is different.

There is no difference in the shape of aggregate demand curve in the short run and that in the long run. The downward sloping curve AD represents the long run aggregate demand curve.  In the long run as the economy already reached to the potential level, the aggregate supply curve become vertical (Mankiw 2014). Now, with a decline in investment expenditure the AD curve shifts inward from AD to AD1. There will be no change in real GDP which stays at Y*. The price level decreases from P* to P1 as the economy moves from B to A.

In the short run, the low price discourages suppliers in the economy due to the direct relation between price and supply. The short run supply curve in upward rising. The decline in price, causes a leftward shift of the supply curve from SRAS to SRAS1. The real GDP contracted from Y1 to Y2. This helps to recover the price level from P1 to P2. In the second run the high price leads to an increases in real GDP gradually which gradually approaches to the long run potential level.

In the short run aggregate supply curve rises upward.  With a positively sloped supply curve a decline in investment expenditure causes a decline in aggregate demand (Johnson 2017).  At the new equilibrium both real GDP and price level declines.

Introduction

Over the years, economics has developed considerably as a separate discipline, with the number of prospects and scopes of exploration increasing consistently with opening of new areas for the economists. Being an economic graduate, I, therefore have many options to explore and choose from in my professional life. As a macroeconomist, I have been specifically interested in the areas of banking, finance and financial analytics for the purpose of building future career and professional prospects. The booming commercial, investment and finance activities and the expansion of the global banking sector as well the banking sector of Australia have increased my attraction towards the same even more and I want to work professionally in this area. I personally desire to work for the National Australia Bank, owing to its reputation, performance and employee satisfaction.

Job Role Desired

The job role which most intrigues me in the banking and financial sector of the National Australia Bank, both in terms of job responsibilities as well as in terms of monetary and career prospects is that of the role of policy analyst. I desire to serve the role of policy analyst in the concerned bank as it is expected to bestow upon me the following responsibilities:

• The duty of exploring the market and policy frameworks existing in the domestic as well as global scenario and finding the pros and cons of those policies
• The responsibility to explore and analyse the prospects and problems in the tie-ups and client-relations of the banks
• To solve the problems arising in the operational framework of the banks in the aspects of their relation with the clients
• To predict the prospects of different schemes designed and implemented by the banks and rectifying the problems in such strategies and schemes
• To recommend the legal pathways for addressing the problems related to the different existing and future policies

For performing these responsibilities, I need to develop my explorative, understanding as well as persuasive skills and expand my domain of knowledge. My writing skills and researching abilities are also important, especially for the purpose of predicting and forecasting the policy implications on the operational framework of the concerned bank.

Why I chose the role of a policy analyst?

In the role of a policy analyst, especially in a reputed bank like that of the National Australia Bank, there are huge knowledge building scopes as well as scope of increasing the domain of expertise and I will also get the freedom to use by researching and analysing ability and think out of the box to provide assistance in crucial times.

Values- I can work in flexible shifts and can contribute to the company in many aspects.

Interests- I personally remain intrigued and interested in working with statistical data and in analysing and predicting the trends.

Personality- I can work in a team as well as an individual and can work in many flexible situations.

Skills- I perceive that I have researching and analysing skills and I also like exploring new facts and I can also perceive the trends of the numerical data as well as the trends and results of implementation of the different policies and can also provide insight for better outcomes in future.

My personality is creative and I can work in any kind of situations can also provide insights for different aspects and statistical trends, which may make me suitable for my desired job roles.

Video Interpretation

In the concerned video, Jeff Hole emphasizes on the role of the subject of economics in the contemporary period and also highlights the parts which can be played by the economists in such scenarios. The video also provides several useful suggestions for future economists in the aspects of career building. As per Jeff, in the contemporary world economists have plenty of opportunities but there also exists huge confusion among them regarding which opportunity to explore and what is the cost of leaving other alternatives.

Keeping this into consideration, Jeff also advices the future economists to acquire professional skills along with their academic degrees as according to him this may be useful for the purpose of building careers. However, the video lacks in suggesting the organizations or educational as well as commercial enterprises from where the students can acquire their necessary skills.

Plan of Action

I have already researched a lot about my desired job role and the criteria to be met for the same. I have also begun to search for the pathways to reach to my desired job role efficiently. However, I still lack professional assistance and guidance regarding the places from where I can get professional experience which in turn may help me in getting by desired job in the organization of my dream.

References

Abs.gov.au. (2018). 5368.0 - International Trade in Goods and Services, Australia, Jan 2018. [online] Available at: https://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/5368.0Jan%202018?OpenDocument [Accessed 29 Apr. 2018].

Abs.gov.au. (2018). Australian Bureau of Statistics, Australian Government. [online] Available at: https://www.abs.gov.au/ [Accessed 29 Apr. 2018].

Agénor, P.R. and Montiel, P.J., 2015. Development macroeconomics. Princeton University Press.

Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-Hill Higher Education.

Data.worldbank.org. (2018). Indicators | Data. [online] Available at: https://data.worldbank.org/indicator [Accessed 29 Apr. 2018].

Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in context. Routledge.

Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.

Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.

Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.

Reserve Bank of Australia. (2018). Historical Data | RBA. [online] Available at: https://www.rba.gov.au/statistics/historical-data.html#exchange-rates [Accessed 29 Apr. 2018

Cite This Work

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