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Questions:

Discuss about the Economy of Australia.
 
 

Answer:

Introduction

Australia has registered an outstanding economic progress unmarred by economic downturn for the past twenty-five years. This nation has an open economy with minimal restrictions on imports. With an open economy, Australia has managed to stimulate expansion, improve productivity and become more dynamic and flexible. The services sector is the principal component of economy contributing approximately 68.2% of the country’s Gross Domestic Product (Central Intelligence Agency (CIA), 2017). Australia has diverse and abundant natural resources such as coal, iron, gold, copper, natural gas, renewable energy sources, and uranium. As a result, the mining industry is one of the leading industries in this country. The natural resources like iron ore, gold, and gas top the list of this country’s exports. Other key industries in Australia include food processing, finance, information and communication technology, and tourism (Garnaut, 2014). Free trade accords with countries such as China, Korea, and Japan as well as ‘dining boom’ among Australia’s closest neighbors are the key drivers for the growth of food processing and tourism industry. The focus on finance sector has been influenced by Australians demand for financial advice and money management (Nyasha & Odhiambo, 2016). Moreover, the need to improve efficiencies among all segments of the economy has facilitated the development of ICT industry.

Production Output Performance Analysis

Real GDP

The real GDP incorporates a measure applied in evaluating yearly variations in the inflation-adjusted values of the general goods and services produced in an economy (Arnold, 2013). By assessing the total output of a country and utilizing the average prices of the base year, the economists make use of this instrument to analyze the purchasing power of an economy and its expansion potential in the long run.

Trends in Australia’s Real GDP (Constant 2010 US$)

Graph 1: Data extracted from the World Bank

On the chart one, it is evident that Australia is experiencing a steady growth in its real GDP. In 2007, the country’s real GDP was 1.061 trillion U.S Dollars which increased in 2008 and 2009 regardless of the global financial crisis. As at 2016 December, the real GDP was 1.343 trillion U.S Dollars (World bank, 2017). The steady increase in Australia’s real GDP can be attributed to earnings from the exportation of minerals like iron and gold, growth in household consumption, healthy conditions in the country’s housing sector among others (Karmel, 2014).

Real GDP Growth Rate

Real GDP growth rate refers to annual percentage variation in the real Gross Domestic Product of an economy. This measure is an excellent appraisal of ups and down in the nation’s economy. By examining economic growth rate statistics, we can tell whether the economy is declining, expanding or stagnant (Sloman, Wride, & Garratt, 2015).  

Trends in Australia’s Real GDP Growth Rate

Graph 2: Data extracted from the World Bank

Between 2007 and 2016, Australia has registered a positive economic growth. The highest economic growth rate was recorded in 2007 (3.75%) and 2008 (3.7%) (The World Bank, 2017). The lowest economic growth happened in 2009 which can be attributed to the Great Depression during this particular time. Since 2009, Australia has managed to register a growth of above 2%. The increases in export earnings and household consumption, as well as good conditions in the housing sector, have helped this nation to maintain recommendable economic progress (Robinson, Tsiaplias, & Nguyen, 2015).

Real GDP Per Capita

Real GDP per capita is an appraisal of a country’s economic output for each person. This instrument apportions the real Gross Domestic Product of a country with the total population. As a result, the real GDP per capita is an exceptional gauge of the living standards of individuals in the country. Furthermore, GDP per capita is instrumental in comparing the strengths of different economies as it depicts the relative performance of an economy (McTaggart, Findlay, & Parkin, 2015).

Trends in Australia’s Real GDP Per Capita (Constant 2010 US$)

Graph 3: Data extracted from the World Bank

Apart from 2009 when the country recorded a slight drop, it is evident that Australia’s real GDP per capita is rising. In 2016 the country’s GDP per capita was $55670.924 which is higher than that registered in previous years (The World Bank, 2017). This scenario shows economic progress and increases in the living standards of the Australians.

Government Measures to Achieve Production Output Performance

In the recent years, the government of Australia has been undertaking important initiatives meant to boost the economy of the country. Foremost, the leadership of this country has been making free trade agreements with diverse nations like India and Singapore to increase the market for its products. There are also important measures geared towards boosting the tourism industry. For example, in 2010, the country launched a long term tourism plan commonly referred to as the 2020 Tourism Industry Potential. This plan has measures in place to enhance tourism marketing, advance tourism transport as well as accommodation capacity (The Australian Trade Commission, 2017).

 


The Australian government is continually investing in rail, communication, port, and road infrastructure to improve the productive capacity of the economy. Such plans are also instrumental in relieving passenger and freight congestion, supporting growth and improving safety. Similar investments are also being made in the sector of education and training to ensure that the nation has the necessary human resources and qualified pool of workforce to stir the economy to the prosperity (Phillips, 2014).

Besides, robust and sound monetary and fiscal policies put in place by the government are helping to stir the economy ahead. For instance, the government has managed to ensure low and relatively stable inflation. Stable inflation is vital in increasing the confidence of the investors due to small risks associated with doing business. The triple-A credit rating of Australia is also a sign that the government has put in place sound policy structures and well established economic fundamentals (Karmel, 2014). Therefore, it is easier for this country to contain the expenses associated with the servicing of public debt and also obtain a loan for development purposes.

Labor Market Analysis

Meaning and Types of Unemployment

Unemployment refers to a scenario where willing and able to work individuals are unable to find a job at the prevailing wage rate. Unemployment is not only a serious problem in less developed countries but also problematic to developing and advanced economies. Frictional, structural and cyclical are standard types of unemployment encountered in any economy (Arnold, 2013).  

Frictional unemployment takes place in an economy when employees are moving between jobs or when the new graduates remain jobless for sometime after entering the job market. This type of unemployment is a natural part of job search and often last for a short term. Structural unemployment stems from structural shifts in the economy like the introduction of a new machine that takes over the employment and hence unemployment. On the other hand, cyclical unemployment refers to an involuntary type of unemployment that is caused by insufficient demand for goods and services (Arnold, 2013).

 

Types of Unemployment in Australia

Frictional, structural and cyclical unemployment are present in Australia. Like any other economy, graduates in Australia do not secure employment immediately and thus remain unemployed for some period. Moreover, individuals voluntarily leave their jobs in search of better ones and therefore unemployed for some time. These two scenarios, therefore, show there is frictional unemployment in Australia.

In the endeavor to improve productivity, firms are now relying more on machines and technology to accomplish most of their key roles. For instance, the banks are embracing mobile banking and thus reducing their reliance on human labor. In the process, structural unemployment takes place (Garnaut, 2014). Besides, Australia is also a victim of cyclical unemployment. In some occasions, the demand for products is known to decline. For instance, the drop in iron based products in both domestic and international market is often resulting in cyclical unemployment in the mining industry.

Unemployment Trends in Australia

Graph 4: Data extracted from the World Bank

Between 2007 and 2016, the lowest level of unemployment was recorded in 2008, that is, 4.23%. However, following the Great Depression of 2009, Unemployment in Australia rose sharply to 5.56%. After the Great Depression, the highest rate of unemployment was registered in 2014, that is, 6.07% (The World Bank, 2017). In 2016, this figure reduced to 5.74% an indication that the economy is improving.

Government Measures to Reduce Unemployment

The government of Australia has implemented several measures meant to increase the employment rate in the country. Foremost, the leadership of this country is continually providing a favorable environment for the operation of businesses. For instance, the government is availing the necessary economic autonomy for the functioning of the firms. Australia’s index of economic freedom is 81 and is currently ranked fifth globally (Globaledge, 2016). Moreover, the government has implemented a favorable corporate tax for small businesses. Small enterprises pay a corporate tax of 28.5% compared to large corporations that pay 30% (Robinson, Tsiaplias, & Nguyen, 2015). Such steps are necessary for improving employment creation in the country.

Additionally, government investment in the infrastructure is vital in accelerating the creation of jobs in the country. With better roads, sufficient power, and other key infrastructures, more business ventures will be set up and hence jobs. The opening up to foreign trade is also encouraging foreign direct investments in the country and thus more employment opportunities for the Australians.

 

Price Level Analysis

Meaning and Typical Causes of Inflation

Inflation refers to a constant increase in the overall prices of products in an economy (McTaggart, Findlay, & Parkin, 2015). Inflation is usually caused by expansionary fiscal and monetary policies. For example, when the government increase transfer payments, reduce taxes, purchase government bonds and reduce the interest rate, inflation is likely to occur. Moreover, increase in the price of inputs such as oil results in inflation.

Causes of Inflation in Australia

The increase in the cost of inputs such as oil is one of the causes of inflation in Australia. The producers usually pass the extra cost to the consumers through high prices. Monetary policies such as reduction in the cost of borrowing for homes have also contributed to high prices of homes in Australia. Moreover, the purchase of government bonds and treasury bills is known to cause inflation in Australia (Phillips, 2014).

Trends in Inflation

Graph 5: Data extracted from the World Bank

Australia is among a few nations in the world whose inflation levels are low. Between 2007 and 2016 the highest level of inflation was recorded in 2008, that is, 4.35%. Then the country experienced a sharp decline in inflation during the economic downturn of 2009, 1.82%. From 2009, the inflation level in this county has ranged between 3.30% and 1.28% (The World Bank, 2017).

Government Measures for Achieving Stable Prices

The government of Australia has a target of achieving an inflation level of 2%. The government often makes use of both monetary and fiscal policies to guarantee price stability. When the inflation level is very low, the leadership employs expansionary monetary and fiscal policies. The monetary instruments involve the reduction in the interest rates and the purchase of government bonds. The fiscal policy often used is the increase in the government expenditure. For example, the government can increase the transfer payments so that individuals have sufficient amount to enhance their consumption. On the other hand, contractionary instruments are applied when the inflation is going out of the target. The increase in the interest rates, reduction in the government expenditure and selling of government bonds some of the steps often taken to reduce inflation (Karmel, 2014).

 

Conclusion

For the past one decade, Australia has registered a remarkable economic progress untouched by depression. The real Gross Domestic Product is increasing steadily. Between 2007 and 2016, the country maintained a growth rate of above 2% except in 2009 when the growth rate stood at 1.81% due to the global financial crisis. The well-established economic fundamentals helped this nation to avoid recession in 2009 that marred many countries in the world. The real GDP per capita is also on the rise demonstrating an improvement in the living standards of the Australians. To guarantee economic prosperity, the leadership of this country has put in place several plans. For example, the country has entered into trade agreements with different nations and is investing in rail, communication, port, and road infrastructures to improve the productive capacity of the economy. Moreover, Australia is experiencing relatively low levels of unemployment and inflation. The unemployment rate has been below 6% while inflation has ranged between 1.28% and 4.35%. Finally, the government is making use of expansionary and contractionary fiscal and monetary instruments to put unemployment and inflation under control.

 

Bibliography

Arnold, R. A. (2013). Economics. Mason, Ohio: South-Western.

Central Intelligence Agency (CIA). (2017, Jan 12). The World FactBook, Australia-Oceania : AUSTRALIA. Retrieved August 4th, 2017, from https://www.cia.gov/library/publications/resources/the-world-factbook/geos/as.html

Garnaut, R. (2014). Australia and resources in the Asian century. Australian Journal of Agricultural & Resource Economics , 301-313.

Globaledge. (2016). Australia: Economy. Retrieved August 5th, 2017, from Globaledge: https://globaledge.msu.edu/countries/australia/economy

Karmel, T. (2014). Learning from successful skills development systems: Lessons from Australia. Prospects (00331538) , 235-247.

McTaggart, D., Findlay, C. C., & Parkin, M. (2015). Economics. Frenchs Forest, N.S.W: Pearson.

Nyasha, s., & Odhiambo, N. M. (2016). Financial Systems and Economic Growth: Empirical Evidence from Australia. Contemporary Economics , 163-173.

Phillips, S. (2014). Why Australia Prospered: The Shifting Sources of Economic Growth. Australian Journal of Agricultural & Resource Economics , 298-300.

Robinson, T., Tsiaplias, S., & Nguyen, V. H. (2015). The Australian Economy in 2014-15: An Economy in Transition. Australian Economic Review , 1-14.

Sloman, J., Wride, A., & Garratt, D. (2015). Economics (9th ed.). Harlow : Pearson.

The Australian Trade Commission. (2017). Economic analysis. Retrieved August 5th, 2017, from https://www.austrade.gov.au/news/economic-analysis/australias-export-performance-in-2015-16

The World Bank. (2017). GDP growth (annual %): Australia. Retrieved August 4th, 2017, from The World Bank: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2016&locations=AU&page=6&start=2007

The World Bank. (2017). GDP per capita (constant 2010 US$): Australia. Retrieved August 5th, 2017, from World Bank: https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?end=2016&locations=AU&start=2007

The World Bank. (2017). Inflation, consumer prices (annual %): Australia. Retrieved August 5th, 2017, from The World Bank: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2016&locations=AU&start=2007

The World Bank. (2017). Unemployment, total (% of total labor force) (modeled ILO estimate): Australia. Retrieved August 4th, 2017, from The World Bank: https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?end=2016&locations=AU&start=2007

World bank. (2017). GDP (constant 2010 US$): Australia. Retrieved August 5th, 2017, from https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?end=2016&locations=AU&start=2006

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