Economic Growth and Well-being in Australia

Australia has emerged as one of the strongest economies globally, with a robust monetary and fiscal framework that has kept its economy floating. The country's real GDP growth rate has shown significant dynamics, and despite being affected by the global economic crisis, it managed to recover without significant suffering to its residents. The unemployment scenario has been under control, except for a few instances of high cyclical unemployment. The government has maintained a balance between low inflation rates and impressive unemployment management. Additionally, the country's external sector is gaining strength, contributing positively to price levels and employment creation. Overall, Australia has performed impressively in terms of economic growth and resident well-being, showing potential to emerge as a greater economic power in the future global economy.

Running head: ECONOMICS ASSIGMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Introduction
The global economic scenario though consists of many players, have been consistently
dominated by few big economies, over the last few decades. One of such economies is the
country of Australia. With the annual GDP of more than 1.5 trillion US dollars, in 2014, the
economy poses as one of the largest economies in the world. The country has been the fifteenth
largest in terms of per-capita GDP and twelfth largest in terms of nominal GDP in the world. The
country has one of the largest external sectors and is the nineteenth largest exporter and importer
in the global scenario (Dyster & Meredith, 2012).
Over the last few decades, the country has developed strongly in almost all of the
economic aspects, which is reflected in the country’s economic and industrial boom, a highly
developed and sustainable service sector, the GDP statistics and the overall population growth
and standard of living the country. The country experienced a significant and unprecedented
boom in its mining sector, which started from 2003 and had a huge contribution in the shaping
up of the economy. The residential sector also has developed hugely, drawing a considerable
amount of foreign investments in the last few decades. The external sector of the Australian
economy has performed significantly well with time. The robust economic policies and strong
strategic framework clubbed with the countries strong trade relations in global economic
scenario and efficient banking sector has helped it in remaining comparatively unaffected by the
Global Economic Crisis of 2007-2008, which otherwise affected all the other major economies in
the world.
In general, the economic growth and the overall health of the economy and the well-
being of the residents of any economy can be portrayed with the help of different economic
indicators like GDP statistics, GDP growth and growth rate, inflation, employment and overall
poverty indicators of that economy. The essay tries to analyze the economic transformations and

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conditions of Australia, between 2005 and 2014, with the help of the performances of the above-
discussed economic indicators (Groenewegen & McFarlane, 2014).
Production Output Performance
The overall economic performance of any country over certain period can be roughly
pictured with the help of the economic growth indicators of the country, like that of the gross
domestic product of the country within that specified period of time. Real GDP is a more robust
version of this indicator as it is adjusted for price changes and inflation or deflation, as the
presence of these phenomena, if not adjusted (as in nominal GDP) can give wrong signals about
the economic well being of that country. The growth of GDP and its rate of a country with time
show the overall performance and economic progress of the country with time (Potrafke, 2012).
The GDP statistic of Australia has shown considerable fluctuations in the last few
decades, owing to several positive as well as negative global and domestic phenomena, having
significant implications on the economy of the country. The GDP of the country increased
significantly from 613.3 billion USD in 2004 to 1.46 trillion USD in 2014.

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Figure 1: GDP Growth Rate of Australia
(Source: Tradingeconomics.com, 2017)
The above figure supports the fact that the economic growth of the country has been
subjected to several fluctuations along with time. For example, the global economic crisis of
2007-2008, had significant negative impact on the economy, which can be seen from the huge
trough in its GDP growth rate curve, as shown in the above figure (Source:
Tradingeconomics.com, 2017).
Again, on the other hand, the mining boom, one of the most significant event in the
economic history of the country, which changed the dynamics of the country to a huge extent,
increased the GDP growth rate of the country as well and helped the country to emerge as a
dominant player in the global economic scenario.

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Table 1: Growth rate of GDP in Australia at constant prices:
(Source: Data.worldbank.org, 2017)
It is evident from the above table, that the real growth rate of the economy, though
fluctuating substantially, has maintained a growth rate of above 2.5% in most of the years
between the time span 2005 to 2014. The growths rates though appear to be low for a country
that has already developed these rates are not unimpressive. This indirectly implies that over the
years the country has strengthened its economic position, handling the economic hurdles that
came on its path (Plumb, Kent & Bishop, 2013).
However, the GDP and GDP growth rate statistics are not enough to conclude about the
country’s overall well being, as it does not portray any picture about the distribution of the fruits
of economic growth among the residents of the country. To comment about the distribution and
overall welfare of the citizens of the country, it is important to take into account the growth of
the per capita GDP of that country with time.

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Table 2: GDP per capita in Austraia (Purchasing Power Parity adjusted):
(Source: Data.worldbank.org, 2017)
The theory of purchasing power parity states that two counties achieve equilibrium in
terms of the exchange rates between the domestic currencies of those two countries, when both
the countries enjoy similar purchasing power. The above table shows that the per capita PPP
adjusted GDP has consistently increased in the country from 2005 to 2014, despite of the
presence of significant fluctuations in its GDP growth rate during the same period. This can be
attributed to the impressive performance of the governing and the monetary authorities of the
country, which did a commendable job in keeping the standard of living of the residents
continually increasing, even in face of economic fluctuations and turmoil.
Government Measures
The regulatory framework of the country being among the most transparent and prudent
ones, the country came out of situations like economic crisis and others, relatively less affected
in real terms (Kubiszewski et al., 2013). The government has taken several microeconomic steps
like deregulating the labor market, reducing strict tariffs for domestic industries in order to make

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them competitive in the international scenario, privatization and deregulating the financial
markets. Apart from a host of monetary and fiscal policies, which are pro-growth in nature, the
government also maintains a stable tax structure with reduced distortionary taxes.
Labour Market
For observing the overall economic welfare of a country and its residents, it is utmost
necessary but not sufficient to study the dynamics of the gross domestic product of the country
only. A lot about the welfare of the residents of a country can be said from the employment
scenarios of the country, the prevalence of different types of unemployment and the dynamics in
the labour market and wage statistics of the country over time (Bernal-Verdugo, Furceri &
Guillaume, 2012).
The rate of unemployment of a country is defined as the indicator of existence of
unemployment burden in a country over time. It is measured as the ratio of the total number of
unemployed people in a country (those who are eligible to work but are not working at present)
by the total number of people in the labor force of that country at that point of time (Hornstein,
2012).
Unemployment, in general can be of three broad types, depending upon their nature and
longevity:
a) Frictional Unemployment- This type occurs with the normal turnovers in the labor market of
an economy and portrays the job leaving and job joining scenarios of the country. This type of
unemployment, therefore, is short term and temporary in nature and does not have significant
implications on the economy.
b) Cyclical Unemployment- This type of unemployment occurs with the up and down cycles
experienced by the economy. Economic events like depression, recession and others cause

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cyclical unemployment, which though have significant implications on the economy in that
specific period, is temporary in nature (Diamond, 2013).
c) Structural Unemployment- This is more long term in nature and arises due to disparities
between the skills demanded by the employers and the skills present among the workers in
general. This reflects the technological stagnancy of a country and if not rectified properly can
have tremendous negative implications on the overall well being of the residents of the economy
(Hornstein, 2012).
The unemployment statistics of Australia, as can be seen from the table below, tells a lot
about the dynamics of the labor market in the country with time:
Table 2: Unemployment rate change and percentage change in Australia:
(Source: Tradingeconomics.com, 2017)
As can be seen from the above table, the unemployment rates in the country, from 2005,
followed a negative trend, with the percentage changes being negative almost throughout the
time span between 2005 and 2014, thereby implying that the government of the country

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implemented appropriate measures and regulation of the labor market. However, a major
increase in the percentage change in the unemployment growth rate was observed in 2009
(31.42%), much of which is attributed to the effects of the great global recession. This started in
the USA and percolated to almost all the economic giants, thereby having huge implications on
the Australian labor market as well as tens of thousands of households lost their job (Sala, Silva
& Toledo, 2012).
However, the nature of this unemployment was more of cyclical in nature and the
economy recovered from the shock eventually. Unemployment rates, however, started rising
again from 2012 and has continued till 2014, much of which may be due to the withering out of
the initial booming conditions of the country’s mining industry. The nature seems to be structural
as the skills of the workers are becoming obsolete with the fall in demand of the mining industry
(Gregory & Smith, 2016).
Government Measures
It took a lot of time for the economy to bring back equilibrium in the labor market with
falling rate of unemployment after the recessionary period. Much of this success can be
attributed to the measures taken by the government. The Australian economy has undergone a
shift in the job pattern from full time workers to part time or casual ones, post the Gobal
Economic Crisis of 2007-2008. This has led to creation of a huge number of jobs and job finding
has become easy. Though these jobs mainly do not have high securities like the former type, the
government still facilitates this knowing that it helps in keeping the rate of unemployment low
and people can sustain themselves. Apart from this various unemployment subsidies and
buffering measures including skill development programs are also undertaken by the government
to make the workers more eligible for employment.

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Price dynamics
Another robust indicator of economic and overall health of a country and the standard of
living of its residents is the overall price level prevailing in the country at a point of time. A
country with a long persisting high level of prices, in general does not perform well in the
economic indicators as high prices in an overall scenario, hurts the well being of the residents of
the country significantly and has several implications on the standard of living of the country in
general (Kumar, Webber & Perry, 2012) .
The most broadly used indicator to measure the price levels and dynamics in this sector
of a country is that of inflation and inflation rates. Inflation refers to the overall increase in the
price levels of goods and services of a country in a generalized framework. The rate of inflation
of a country over a period, therefore, shows the dynamics of the price levels of the country and
indirectly reflects on the changes in the cost of living in that country with time (Hansen, 2016).
Depending upon the nature and the causal factors, inflation is mainly categorized into two
types:
Demand-pull inflation- This type of inflation generally occurs in a country with a sudden
upsurge in the overall demand of goods and services of a country, thereby creating an excess
demand in the market and raising the price levels.
Cost-push inflation- Often the overall cost of production in a country increases due to exogenous
and endogenous factors, thereby increasing the prices of the goods and services as well (Grindle,
2012).

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Table 3: Inflation in Australia:
(Source: Data.worldbank.org, 2017)
The above table shows the changes in the inflation of the country with time as per the
GDP deflator indicators. GDP deflator is the ratio of the nominal and real GDP, multiplied by
100 and measures the price inflation of a country. Much of the inflation that has been existing in
the country has been due to the mining boom, which the country had experienced in the last
decade (Downes, Hanslow & Tulip, 2014). The mining boom led to creation of huge scopes of
employment, which in turn increased the overall demand of the country, thereby causing a
demand-pull inflation in the country (Gregory & Smith, 2016). Apart from this the country now
and then experiences inflation which are mainly of cost push types, like in the recent period due
to the upsurge in fuel price. The economy also experiences the high cost of import from China,
which in turn has led to decrease in domestic supply and led to a hike in price levels.

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Government Measures
However, the government has done a commendable job in the recent few years in
keeping the inflation rate moderately low. In Australia, over the last few years, the standard of
living, wage and employment has grown at a higher rate than that of inflation, thereby inflatin
having low significance on residents’ lives. The monetary framework, tax structure and the
saving incentives provided by the Australian government have contributed cumulatively in
keeping the inflation rates low in the country. The external sector of the country, has also
strengthened a lot with due course of time and the country has now established robust ties with
almost all the economic giants in the world. This in turn helps the country to keep a floating
exchange rate and helps to provide buffering in case of any discrete price fluctuation. This was
evident from the strikingly better performance of the economy of the country, in keeping the
overall price levels more or less floating during the period of Great Recession, 2008, which
affected almost all the countries in the world adversely.
Conclusion
From the above discussion, it is evident that Australia has eventually emerged as one of
the strongest economies in the global economic scenario and there are robust reasons behind it
becoming a global economic giant. The economy has shown significant dynamics in its real GDP
growth rate, however, keeping purchasing power parity adjusted per capita GDP increasing
continually between 2005 and 2014. This in turn implies that though the economy was effected
by the global economic crisis, it somehow managed to come out of the problem, without causing
much sufferings to the residents. Much of this stability and consistency of the country’s economy
can be attributed to the monetary and fiscal strategic framework desiged by the governing

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authorities of the country, which kept the economy floating. The unemployment scenario of the
country has also been under control except for two or three instances, where the unemployment
in the economy was significantly high, much of which being cyclical in nature. There are
evidences of existence of structural unemployment in the country, as in the time of the crisis of
2012. However, the government has managed to keep the recent statistics low by changing the
structure of the jobs now available to mainly part time ones, thereby making job finding easier.
The mining boom in the country, contributed to its inflation rates, due to the existence of demand
pull inflation, with the recent trends showing a negative turn due to the withering out of the
mining boom effects. The government of the country has in general managed to keep the
balance between a steady and low inflation rate and an impressive unemployment management.
The external sector of the country is also gaining strength with time, thereby having positive
implications on both the price levels and the level of employment creation prevailing in the
country. Overall, the country has been and is still performing impressively in terms of economic
growth and well-being of its residents and shows potential of emergence as a greater economic
power in the future global economic scenario.
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