Trends in Global Economy: Cash Rate, Inflation, Unemployment and Real GDP Growth Rates

ECONOMICS 1
Global Economy
Student’s name
Course
Institutional affiliation
Instructor’s name
City and state
Date

ECONOMICS 2
Question One
There are over fifteen changes of interest rates from the period of 20 years. This sis due
to the ups and downs (cyclical movements of cash rates). Such situation is presented in figure 1
below.
Figure 1: Cash Rate in (%)
6-Jul-16
2-Sep-15
5-Nov-14
5-Feb-14
3-Apr-13
6-Jun-12
3-Aug-11
6-Oct-10
2-Dec-09
4-Mar-09
7-May-08
4-Jul-07
6-Sep-06
2-Nov-05
2-Feb-05
7-Apr-04
4-Jun-03
7-Aug-02
3-Oct-01
6-Dec-00
8-Mar-00
5-May-99
8-Jul-98
3-Sep-97
5-Feb-97
0
1
2
3
4
5
6
7
8
Cash Rate in (%)
Time
Cash rate (%)
Source: Author, 2019
Figure 1 above shows the cash rate trend of Australia from 1996 to 2016. In 1996, there
was a high cash rate in Australia which was above 7%. From 1996 to 1999, the rate at which the
cash rate was declining was drastic up to 4.4%. However, the cash rate increased from 1999 to
2000 and later dropped from 6.3% in 2000 to 4.1 in 2002. From 2008 to 2016, there has been
gradual decrease of cash rate up to 1.7% in 2016. Generally, there has been cyclical movements
of cash rate from month to month or from year to year especially from 1996 to 2016. The
decisions of monetary policy can be expressed in form of targeted cash rate that are about
‘money market interest rate’ (Ahortor & Adenutsi, 2011). The cash rate that is high have got the

ECONOMICS 3
flow on effect about lifting interest rates on ‘credit cards’, mortgage repayments and loans. This
therefore leaves the customers with low amounts to be saved or consumed. It is evident that,
when cash rate increases, the repayments of debt are likely to go high. This therefore discourages
individuals who do not possess loans from getting one (Kan & Omay, 2010) When the Reserve
Bank of Australia (RBA) increases the cash rate, it is done in order to apply conditions about
demand growth and the inflation levels (Lowe, 2019). Besides, high interest rates tend to be a
restraint factor of the growth of lending behaviour thus creating negative influence of ‘demand
and inflation’. On the other hand, when there is a fall of cash rate, RBA tries to improve
economic activities and inflation in order to encourage spending of consumers and investments
in the businesses (Chang & Chiang, 2011). However, interest rate tends to encourage households
to get money instead of saving thus improving on the economic activity. For the case of property
owners, reduced interest rates decrease their repayments which result into increased disposable
income (Lowe, 2019). When the cost of borrowing is low, this may encourage individuals to get
more loans to get luxuries and also to invest so as to boom the economic activities in Australia.
Question Two
This section provides the trend of inflation real economic growth and unemployment
rates among three countries of Australia, Japan and United States of America. Each country has
got a target to achieve through which such economic indicators can be maintained to reach the
set objective (Bittencourt, 2012). Besides, each country has got the central bank and reserve
banks that regulate the level of activities roaming in the economy (Raphael et al 2010). For
Australia, it is called the Reserve Bank of Australia (RBA) which has got its objective of
regulating inflation rates and exhausting unemployment rates.