Australian economy and its relation with USA

Running Head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Course ID

1ECONOMIC ASSIGNMENT
Executive Summary
USA and Australia are two of the most powerful developed nations in the world. The paper has
scrutinized the Australia’s economic performance. In this context, the relation between USA and Australia
has been explored in light of relation between exchange rate and net export and movement and bank rate
in the two nation. The trend analysis of GDP growth and unemployment shows unemployment moves in
opposite direction of growth. GDP growth though initially influences price level the relation however
weakens following inflation targeting policy of unemployment. A weak Australian dollar helps to maintain a
trade surplus while a strong Australian dollar does the reverse. Bank rate in both the nation has declined
overtime following a monetary easing. The quick recovery of Australian economy indicates that the
economy will soon enter in a new era of economic growth.

2ECONOMIC ASSIGNMENT
Table of Contents
Introduction.................................................................................................................................................. 3
Relationship between real GDP and inflation and unemployment...............................................................3
Growth in real GDP and trend in unemployment......................................................................................3
Growth in real GDP and trend in inflation................................................................................................. 4
Business cycle and economic growth...................................................................................................... 4
Net export and exchange rate.................................................................................................................. 5
Cash rate and fund rate............................................................................................................................... 6
Outlook of Australian economy.................................................................................................................... 7
Conclusion................................................................................................................................................... 7
List of References........................................................................................................................................ 9

3ECONOMIC ASSIGNMENT
Introduction
Different indicative measures of economic performance of a nation are GDP growth, inflation,
unemployment, interest rate, export and import. Evaluation of economic performance thus requires
analysis of economic performance in each of this indicator (Fontana and Setterfield, 2016). Australia is a
small-developed nation with high dependency on service sector especially financial services. Like several
other developed nation Australia also has experienced dynamic fluctuation in the economy. The interest
factor about austral is that, it has quickly absorbed the economic shocks and successfully balanced the
stable growth path. The paper tries to find insights about macroeconomic performance of Australia for the
last few years specifically from 1990 to 2016. The analysis also includes the economic relation between
Australia and USA.
Relationship between real GDP and inflation and unemployment
Among different interconnected macro variables, relation between GDP growth, inflation and
unemployment is widely discussed. Unemployment and price level in a nation move along with the growth
in real GDP. A rising GDP growth implies a favorable condition for employment growth pushing
unemployment to a low level (Terra, 2015). Growth in real GDP by boosting economic activity pushes up
the price level. Very high price level however has an adverse effect on growth by a lower output resulted
from increasing cost of production.
Growth in real GDP and trend in unemployment
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Real GDP growth and unemployment
Real GDP growth rate Unemployment
Year
Unemployment and GDP growth rate
Figure 1: Unemployment and GDP growth
Figure 1 represents the unemployment trend in Australia along with trend in GDP growth rate. The
unemployment rate except in the last few years has a more or less declining trend. GDP growth on the
other hand has only a moderate growth rate with a sudden fall in growth during years of recession. The
decline in unemployment along with a growth in GDP reduces the gap between rate of growth and that of
unemployment. This shows a positive influence of economic growth on labor market performance. The
economic growth in Australia thus expands opportunities for laborers (Hartwell, 2017). One major driver of
Australian economic growth for several years is the mining sector. The sector being highly labor intensive,
during mining boom of Australian many people get opportunities to get employed. With a decline in
growth rate unemployment increases as reflected from widening gap between unemployment and growth
rate since 2013.