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Macroeconomic Indicators

Question:

Discuss About The Reassessing Ins And Outs Of Unemployment?

The objective of this report is to analyze on the present economic health of the Australia. This nation is bouncing back after recession period (2008-2009). The economic growth of  Australia strengthens and convergence of income has resumed in the current state. Moreover, recent statistics reflects that the income inequality decreases and rate of unemployment also declines in this current period. In addition, global trends have influenced financial as well as economic health of Australia (Angelini et al. 2015). The nation enjoyed huge success in the present decades that reflects good macroeconomic policy and structural changes. Improvement in competition in the economy that enhances innovation development is main for reinstating productivity growth of the nation. The collaboration between organizations and research industries boosts the productivity growth of the nation. The rank of Australia in terms of nominal gross domestic product (GDP) is 12th while its position in terms of purchasing power parity is 19th (Andreeva and Kianto 2012). Economic condition of Australia is also distinguished between first quarter (Q1) of 2017 and second quarter (Q2) of 2016. Major issues that Australia faces in the next 12 months are also explained in this study.

Australia economic situation has been measured by using different macroeconomic indicators that includes GDP, rate of inflation, rate of employment and balance of trade. Recent statistics highlights that the growth of the Australian economy perks up in the current year. Moreover, it has been predicted by the Reserve Bank of Australia (RBA) that the economy will be increasing in upcoming years (W et al. 2015). The present health of the country shows that the reforms in many sectors as well as implementation of economic policies contribute to its growth. The country’s GDP reflects huge variation in growth and reflects expansion in Q1 of 2017 with respect to Q2 of 2016. In  addition, rise in income inequalities as well as aboriginal population assures that fair opportunities also occurs in the labor market owing to implementation of economic policies (Tonts et al. 2012). Furthermore, growth in wage rate as well as rate of unemployment and inflation decreases in the present decade. Eventually, the countries employment increases by near about 61.4% in the present year.  However, this country has shown mixed signals over this two year (2016 and 2017). The analysis has been done by using the macroeconomic indicator given below:

GDP of Australia

GDP of Australia- GDP of a country signifies total output or productivity of the nation. Economist focuses on GDP of the nation for assessing whether the nation is in recession or boom. The GDP of this country has shown positive signals over the past few decades (Delgado et al. 2014). The current value of  GDP is USD  1343.6 billion, which reflects the size of the Australian economy. Rise in purchasing power of the consumer’s leads to reduction in savings growth rate. As a result, this nation’s income rises due to rise in total production. Hence, increase in consumption of Australians by 0.5% sums up to 0.3% growth rate in GDP this year. It has been opined by (Panayotou 2016) that total investment also contributes to 0.4% to Australia’s GDP leading to decline in overall savings rate by 4.7%.

Unemployment rate of Australia- In Q1 of 2017, the country’s unemployment rate reduces  to near about 5.6% due to technologies, automation , infrastructure and off shoring. However, more than 239373 jobs has been created in this year  because of policy reforms and expansion of business globally. The labor force participation in wok increases to 65.1%, which increases labor market flexibility. Thus, augmentation in participation rate of 0.1% to 65.1% leads to rise in employment rate in Q1 of 2017 from Q2 of 2016 (Klinger and Rothe 2012)

Inflation rate in Australia- Inflation rate specifies increase in level of goods prices that leads to decrease in consumers purchasing power. The Australian Bureau of Statistics (ABS) estimates the nations rate of inflation by applying consumer price index (CPI). In Q1 of 2017, the CPI rises to 2.1% due to increase in medical and cigarettes prices. After over viewing the economic condition, the RBA tries to cut the interest rates for stabilizing inflation.

Australia’s trade balance- Balance of Trade (BOT) signifies net export of goods and services of the respective country. The BOT of the nation determines whether the country is in trade surplus or trade deficit (Hatfield-Dodds et al. 2015). Trade surplus occurs when export becomes higher than import of commodities. On the contrary, trade deficit takes place when import of goods becomes greater than its export. Australia’s BOT in Q1 of 2017 is 888 billion that signifies this  economy undergoes surplus in trade.

The current statistics reflects that the present condition of Australian economy expands in Q1 of 2017 from the Q2 of 2016.  Australia’s GDP expands by about 0.3% in Q1of 2017 in comparison with Q2 of 2017 that recorded to 0.5%. Mining sector hugely contributes to  AUD 29393 million in this year. In addition, finance as well health sector made a huge contribution to the nation’s GDP growth rate. Aggregate demand for products increases in Q1 of 2017 regardless of weak expenditure in retail sector and is mainly driven by rise in rate in nondiscretionary industries that involves electricity as well as gas segments. Besides, changes in inventories also increase to AUD 2069 million that is mainly contributed by retail and mining industries.

Unemployment Rate of Australia

Graph 1: Comparing Australia’s GDP in Q1 of 2017 and Q2 of 2016

Source: (Authors creation)

In Q1 of 2017, Australia’s unemployment rate declines to about 5.6% from Q2 of previous year that amounted to 5.7%. Decrease in Australia’s rate of unemployment happens due to increase in participation of workers in part-time jobs (Dijkstra et al. 2013). The figure reflects that workers participation rate remains stable during the phase of 2016 and 2017 at 64.9%. Nevertheless, this country’s unemployment rate rises above the target level of 5%. The reason behind this is that –

  • Decline in infrastructure expenditure during destitute economic situation shifts the employees from this country
  • Structural unemployment occurs due to implementation of new technologies by few businesses
  • Recession or financial crises in the period 2008-2009 also hampered country’s economic growth owing to rise in nations unemployment.

Graph 2: Comparing unemployment rate in Q1 of 2017 with     Q2 of 2016

Source (Authors creation)

In Q1 of 2017, consumer price index (CPI) of Australia rises to 2.1% in comparison with the second phase of 2016 that recorded at 1%.This highlights that price of the commodities including food, beverages, education, medical services and housing sector increases and thus improving Australians standard of their living. It has been noted that the average rate of inflation in Australia from 1951 to 2017 is 5.07%.

Graph 3: Comparing Australia’s unemployment rate in Q1 of 2017 with Q2 of 2016

Source: (Authors creation)

Balance of trade of Australia increases to 888 billion in this quarter of 2017 owing to increase in exports and imports of products and services. As a result, the national income of Australia improved in Q1 of 2017 due to expansion of trade (Kumar et al. 2012). On the other hand, trade deficit results in Q2 of 2016 as BOT of the nation was -1576 that reflects trade value of this economy were quite low in comparison with Q1 of 2017.

Graph 4: Comparing Australia’s Balance of trade in Q1 of 2017 and Q2 of 2016

Source: (Authors creation)

Different economical issues that this nation might face in the upcoming 12 months are:

  • Modern tax system imposed by Australia’s government plays an important role in competitiveness and productivity of the nation. Changing tax system influences the incentives for acquiring job and thus improper tax settings reduces personnel participation rate (Wakeel and Ullah 2013). Therefore, all the industries might face this issue in the next 12 months.
  • Increasing population of Australia increases pressure on the spending of the consumers mostly in few areas that includes medical sectors. Swelling health cost linked to introduction of advanced technologies for producing medicines increases fiscal pressures.
  • Infrastructure as well as capital investment will also influences the economy of Australia in the next 12 months. The economy will need huge infrastructure investment and capacity building for long term. Therefore, this capital investment will be acquired for developing big infrastructure projects such as rail, roads. Thus, other nations increases competition for developing large projects in terms of restricted availability of capital and this adversely affects the Australian economy.

Conclusion

From the above report, it can be concluded that present economic condition of Australia stimulates growth of the nation in Q1 of 2017 as compared to Q2 of 2016. The nation has grown by around 2.5 % on an average over these two years. Rise in growth of mining industries supported by a rise in resource exports expands the GDP growth rate of Australia. Moreover, dwelling investment strengthens in Q1of 2017 relative to Q2 of 2016 improved the condition of this economy. It has been forecasted by the economist that Australia’s GDP growth rate will augment to 3% in 2018. In addition, adoption of expansionary monetary policy by RBA since Q2 of 2016 also facilitates the nation to progress in rapid way. Moreover, it has been predicted by the economist that Australia economy might face many challenges in terms of competition from other countries, which might affect the growth in the next 12 months.

References

Andreeva, T. and Kianto, A., 2012. Does knowledge management really matter? Linking knowledge management practices, competitiveness and economic performance. Journal of knowledge management, 16(4), pp.617-636.

Angelini, P., Clerc, L., Cúrdia, V., Gambacorta, L., Gerali, A., Locarno, A., Motto, R., Roeger, W., Van den Heuvel, S. and Vl?ek, J., 2015. Basel III: Long?term Impact on Economic Performance and Fluctuations. The Manchester School, 83(2), pp.217-251.

Delgado, M., Porter, M.E. and Stern, S., 2014. Clusters, convergence, and economic performance. Research Policy, 43(10), pp.1785-1799.

Dijkstra, L., Garcilazo, E. and McCann, P., 2013. The economic performance of European cities and city regions: Myths and realities. European Planning Studies, 21(3), pp.334-354.

Hatfield-Dodds, S., Schandl, H., Adams, P.D., Baynes, T.M., Brinsmead, T.S., Bryan, B.A., Chiew, F.H., Graham, P.W., Grundy, M., Harwood, T. and McCallum, R., 2015. Australia is' free to choose'economic growth and falling environmental pressures. Nature, 527(7576), p.49.

Klinger, S. and Rothe, T., 2012. The Impact of Labour Market Reforms and Economic Performance on the Matching of the Short?term and the Long?term Unemployed. Scottish Journal of Political Economy, 59(1), pp.90-114.

Kumar, S., Webber, D.J. and Perry, G., 2012. Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), pp.2945-2954.

Panayotou, T., 2016. Economic growth and the environment. The environment in anthropology, pp.140-148.

Shimer, R., 2012. Reassessing the ins and outs of unemployment. Review of Economic Dynamics, 15(2), pp.127-148.

Kubiszewski, I., Costanza, R., Franco, C., Lawn, P., Talberth, J., Jackson, T. and Aylmer, C., 2013. Beyond GDP: Measuring and achieving global genuine progress. Ecological Economics, 93, pp.57-68.

Tonts, M., Plummer, P. and Lawrie, M., 2012. Socio-economic wellbeing in Australian mining towns: A comparative analysis. Journal of Rural Studies, 28(3), pp.288-301.

Wakeel, I. and Ullah, K., 2013. Impacts of budget deficit on output, inflation and balance of trade. Journal of global and scientific issues, 1(1), pp.40-52.

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