Australian Economic Stability Analysis

The assignment examines the stability of the Australian economy, analyzing trends in GDP growth and inflation rates from 2010 to 2017. It highlights the decline in both indicators over this period and discusses the role of automatic and structural stabilizers in maintaining economic equilibrium. The analysis focuses on the country's reliance on market dynamics and its current stable position.

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Economics for Business
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Executive summary
The study mainly aims to explore current condition of Australian economy. For assessing
the condition study considered the GDP level and inflation rate of the country. Results suggest
that economy is in stable stable position also the stabilizers of the country helps the country to
restore its equilibrium back.

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Table of Contents
Introduction:....................................................................................................................................3
Analysis...........................................................................................................................................3
Australian Economy....................................................................................................................5
Australian Policy Framework......................................................................................................8
Conclusion:......................................................................................................................................8
References........................................................................................................................................9

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Introduction:
Market dynamics are mainly determined by demand and supply of the market and their
changes with respect to price and quantity. Thus market is driven by chief forces which are
demand and supply and for a market to reach equilibrium these two has to reach a stable point,
thus equilibrium is a point where demand of the economy equal supply of the economy.
However, if equilibrium is unstable then several factors work together to reach the stable
equilibrium point, and for this equilibrium is automatically restored. The purpose of this report is
to explore whether Australian economy currently is in stable equilibrium position or not. This
stability of the economy is determined by considering both macroeconomic perspective and
microeconomic perspective.
Analysis
In an economy stability reached at the point of equilibrium and this equilibrium is a
subject matter of demand and supply of the economy (Yang & Ng, 2015). Demand comes from
the buyers end and supply comes from the sellers end, and when a quantity demanded is met by
quantity supplied then market equilibrium is reached. Microeconomic perspective is shown
below in figure 1.

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Figure1: Market equilibrium
The above figure shows market demand and supply. Figure shows that equilibrium point
is reached at EP =EQ, at this point equilibrium price is EP and equilibrium quantity is EQ. At
this point it can be observed that there is no excess demand or excess supply, thus market is said
to reach at a point. Now with changes in the behavior of individuals market equilibrium may also
change. Equilibrium is thus subject matter of taste, technology, resources and environment. If
equilibrium point is disturbed by any of these factors then dynamic market forces will bring the
equilibrium to a stable point.
In the above figure, if price increases from EP to P1 then due to the increase in the price
level, the demand for the commodity will decrease and this decrease takes place following law of
demand. Due to this increase in price level, there will be excess supply in the market and this is
because all the sellers will increase their production owing to price level. This excess supply in
turn will create pressure on sellers and market price will decrease.
Now if price falls from P1 to P2, then the quantity demanded will increase. This fall in
the price influence sellers to reduce their supply as a result excess demand is created in the
market and to clear this the price will again increase and reach EP which is a equilibrium price,

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thus market equilibrium is restored. Therefore, it can be observed that equilibrium is stable as
any deviation from the equilibrium is followed by adjustment processes which bring the market
to the equilibrium position again.
Equilibrium and stability in the macroeconomic scenario is determined with the help of
the concepts of aggregate demand and aggregate supply (Ljungqvist & Sargent, 2012).. This is
shown in below figure 2.
Figure 2: Stability of economy
Macroeconomic indicators together determine the stability in the economy; these
indicators may be GDP, unemployment and others. The above figure shows the stability reached

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by an economy at point E. Now deviation from equilibrium shows excess demand and supply. At
equilibrium price P0 quantity demanded is Y0 .
Australian Economy
The economy of Australia is a capitalistic in nature. Economy in Australia is driven by
demand and supply forces. Here the decision regarding price is taken by suppliers and they set
the price in such a way that profit is maximized by meeting the demand of the market. The
stability of the economy can be analyzed by considering the GDP level of the country(Downes,
Hanslow& Tulip,2014). .
2010 2011 2012 2013 2014 2015 2016
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
AUSTRALIA(GDP in Trillion)
Figure 3: GDP of Australia (20010-2016)
(Source: "GDP (current US$) | Data", 2017)
The above figure, shows that GDP level of Australia over the period from 2010 to 2016
has decreased. In 2012 and 2013, country’s GDP was at 1.5338 trillion and 1.567 trillion. This
GDP level is higher than the level in 2010 which was estimated at 1.143 trillion. But currently

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after 2013 , GDP level of the country has fallen. In 2015 it was 1.345 trillion and in 2016 it is
estimated lower than 2015. Thus it can conclude that GDP has started to fall after 2013.Currently
economy is facing excess supply situation and this is due to fall in GDP level, which shows the
health of an economy ("GDP (current US$) | Data", 2017).
Now considering the inflation rate that is prevailing within the economy we can get an
idea about the overall price level. Price level is considered since it also shows the fluctuations
that economy faces due to change in it.
2009 2010 2011 2012 2013 2014 2015 2016 2017
0
0.5
1
1.5
2
2.5
3
3.5
Australia(Inflation rate)
Figure 4: Inflation Rate
(Source: "Australia Historical Inflation Rate - 2010 to 2017", 2017)
The above figure shows that inflation rate in Australia has fallen over the years from
2010 to 2016. In 2010 it was 2.99 percent, in the next year also it was high at 3.33 percent but

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post 2011 inflation rate within the country began to fall . In 2013 it was observed that the
inflation rate reaches 1.3 percent.
Thus it can be observed that inflation rate of the country shows a consistent result with
that of GDP. Over the years both GDP level and inflation rate has decreased.
Australian Policy Framework
a) Automatic Stabilizer:
This stabilizer stabilizes tax and expense of the Government. It follows a counter-cyclical
method of influencing the aggregate demand. Under this stabilizer, the budget adjustments take
place which takes it to surplus from deficit. The tax structures of the countries includes CGT,
GST and others (Kearns,2013).
b) Structural Stabilizer:
This stabilizer includes changes in the budget of the country, tax structure of the country
and expenditure structures of the country. It directly impacts on the aggregate demand. These
policies are generally taken in case of economic fluctuations, when the automatic stabilizers
cannot bring the economy to equilibrium situation (Fraser, Macdonald & Mullineux, 2014).
Conclusion:
Australian economy depends upon market dynamics, currently economy is in stable
position and this stability is consistent with the result that is obtained from observing the GDP
level and inflation rate of the economy. Moreover, if the economy is not in stable position then
the stabilizers used by the country will impact the equilibrium to restore its equilibrium position.

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References
Australia Historical Inflation Rate - 2010 to 2017. (2017). Rateinflation.com. Retrieved 23
September 2017, from https://www.rateinflation.com/inflation-rate/australia-historical-
inflation-rate?start-year=2010&end-year=2017
Downes, P. M., Hanslow, K., & Tulip, P. (2014). The effect of the mining boom on the
Australian economy.
Fraser, P., Macdonald, G. A., & Mullineux, A. W. (2014). Regional monetary policy: An
Australian perspective. Regional Studies, 48(8), 1419-1433.
GDP (current US$) | Data. (2017). Data.worldbank.org. Retrieved 23 September 2017, from
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=AU
Kearns, J. (2013). Lessons from the Financial Crisis: An Australian Perspective. The Great
Recession: Lessons for Central Bankers, MIT Press, Cambridge, 245-268.
Ljungqvist, L., & Sargent, T. J. (2012). Recursive macroeconomic theory. MIT press.

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Yang, X., & Ng, Y. K. (2015). Specialization and economic organization: A new classical
microeconomic framework (Vol. 215). Elsevier.