Macroeconomic Environment and Monetary Policy of Australia

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ECON 11026
ASSESSMENT ITEM 3- TAKE HOME ESSAY

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Contents
Introduction................................................................................................................................3
Analysis......................................................................................................................................3
Question 1..................................................................................................................................3
Question 2..................................................................................................................................8
Question 3..................................................................................................................................9
Question 4................................................................................................................................11
Question 5................................................................................................................................16
Conclusion................................................................................................................................19
Reference..................................................................................................................................20

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Introduction
Economic performance is a great concern for the government and the central banks all around
the world. The politics, diplomatic relationships and power come from the sound operation of
the macroeconomy. The paper aims to shed light on the macroeconomic environment of
Australia. In addition to that, the paper also analyses the monetary policy as a stabilizing tool
for the central bank of Australia (ABC News, 2019). The analysis can help the central bank to
decide on the policies next time the economy requires an intervention.
Analysis
Question 1
Macroeconomic goals of Australia
There are four main macroeconomic goals set by the government of Australia and the central
bank. These are,
 Achieving full employment
 Stability of the price level
 The high and sustainable rate of economic growth
 And a healthy balance of payment.
Overview of the economy of Australia
The Australian economy is well performing mixed economies with an annual GDP of 1.93
trillion USD as per the data of 2018 (Bajada, 2018). The per capita median wealth of the
economy is very high compared to the similar countries. The economy of Australia is mainly
dependant on the service sector that contributes around 67% to the national GDP. Other than
that the resource availability in Australia also helps the economy as well. Findlay & Garnaut,
(2017) stated that Australia often experiences mining boom that further boosts the economy
for a short period. One of the latest mining booms that were experienced by the Australian
economy was in 2003 which lasted till 2013 (Finance.gov.au, 2019). The boost also helped
the economy to deal with the external changes and problems such as the global financial
crisis of 2007. The economy is a member of different trade associations and blocs that helps
in amplifying the export of mining products in different parts of the world.

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The main macroeconomic indicators of Australia
GDP
2015 2016 2017 2018 2019
0
200000000000
400000000000
600000000000
800000000000
1000000000000
1200000000000
1400000000000
1600000000000
Recent GDP trend of australia
GDP
Figure 1: The recent GDP trend
(Source: Tradingeconomics.com, 2019)
The current GDP trend of Australia is upward sloping as of January 2019. Since the drop in
GDP in the year 2016, it increased over the years (Findlay & Garnaut, 2017). The increase in
the GDP of Australia stems from the growth of the service sector in the last few years.
However, in the last few years, the GDP of the country has been the same.
GDP growth
2015 2016 2017 2018 2019
0
0.5
1
1.5
2
2.5
3
2.34
2.85
2.34
2.83
0.28
Annual GDP growth rate
Annual GDP growth rate

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Figure: Growth rate of GDP, Australia
(Source: Tradingeconomics.com, 2019)
The trend in the GDP growth rate has been exceptional since 2015; however, the growth rate
has fallen significantly in the last year. The economic growth rate of the Australian economy
has been reduced by 93% since the last year. However, as per the trend that is evident from
the figure, the GDP growth rate may increase again in the coming years.
Inflation rate
2015 2016 2017 2018 2019
0
0.5
1
1.5
2
2.5
Inflation rate of australia
Inflation rate of australia
Figure 3: The inflation rate
(Source: Tradingeconomics.com, 2019)
Inflation trend is good news for the lawmakers and authorities of the country. The
government had set a goal to keep the prices stable over the years. In the last two years,
inflation has been the same resulting in a constant price level in the aggregate market.
Unemployment rate

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2015 2016 2017 2018 2019
4.6
4.8
5
5.2
5.4
5.6
5.8
6
6.2 6.05
5.71
5.59 5.6
5.13
Unemployment rate
Unemployment rate
Figure 4: the Unemployment rate
(Source: Tradingeconomics.com, 2019)
The economy of Australia has been performing well in terms of the unemployment rate. The
current unemployment rate in Australia is lower than in the last few years. The trend in the
unemployment rate in Australia can be attributed to the increase in capital investment.
Exchange rate
2015 2016 2017 2018 2019 43678
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9 0.82
0.7 0.72
0.79
0.7
0
value of australian dollar (in USD)
value of australian dollar (in USD)
Figure 5: The exchange rate