Economic Analysis of an Australian Event

Analysis of economic
event in Australia

Contents
Contents................................................................................................................................................2
INTRODUCTION................................................................................................................................1
MAIN BODY.......................................................................................................................................1
CONCLUSION....................................................................................................................................4
REFERENCES.....................................................................................................................................5

INTRODUCTION
A nations economy is vast and extremely complex. Every action will spillover and have
ripples in the entire economy. Therefore its effects cannot be studied in isolation. The branch of
economics which deals with the aggregate economy of a nation is macroeconomics. There are
two most crucial elements of policy making for a government in an economic context, these are
fiscal policy and monetary policy. Fiscal policy affects the economy by causing a change in the
investments-savings (IS) curve while monetary policy impacts the liquidity-money (LM) curve.
Regardless of what policy is employed to influence the economy, the final result will be a change
in the aggregate real output (denoted by Y) or GDP of a country, while simultaneously causing a
change in the general price level or interest rates (denoted by i). The scope of this report focuses
on the Australian economy.
In 2020, with a GDP of $1.40 trillion, the Australian economy was ranked 13th largest in the
world. With the country rich with natural resources, its largest exports were in iron ore, coal,
petroleum gas, gold etc. However, with the Covid outbreak resulting in strict lock-downs all over
the world, the global economy halted and almost came to a standstill. Countries all over the globe
including Australia, had to use extreme stimuli to restart the economy. One example of such
external stimuli is the decision of the Reserve Bank of Australia to rapidly reduce the interest rate.
To alter the interest rate a central bank has to employ monetary policy. However, as the
aforementioned statement states, a nation's economy is extremely complex, and any economic
factor cannot be set arbitrarily. This report focuses on the article linked below to understand how
in the last few months the central bank of Australia has moved the interest rates. And the
mechanism of Open Market Operation (OMO) behind changing the interest rate in Australia.
Finally understanding how the Reserve Bank of Australia is normalising the interest rates, and
how will it impact the economy.
MAIN BODY
Australia has a robust economy and data suggests that, the country has seen a steady
growth over the years going as far back 1960s. With a population over twenty million, it also has a
relatively big work force of twelve and a half million people. In the pre-pandemic times, the
unemployment rate in the country was 5.16% showing a gradual decline in the metric over the last
two years. The real interest rates too was too in check by the Reserve Bank of Australia (the
Australian Central Bank) during that period with an annual average in 2019 being 1.64%. During
that period, the gross domestic product of the country was close to 1.33 trillion USD. At this time
however, the world saw an unprecedented event in the modern history (starting from the end of
World War II in 1947). These number took a hit when in late 2019 and following year of 2020 the
world witnessed the Covid pandemic. Which made it an interesting topic to analysis the aftermath
strategies adopted by various countries to overcome this shock. And analyse the whole situation
from an macroeconomic point of view.
By the end of 2020, Australia along with the rest of the world, experienced a sharp decline
in productivity. The GDP was now $1.33 trillion and the unemployment jumped to 6.2%.
Household incomes were dwindling. People were out of jobs as the government enforced strict
lockdowns and all business were shut. At this moment, the Australian government and central bank
had to decide how to revive the economy and help people and business while keeping the well-
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