Global Economy: Real GDP Growth, Inflation Rate, and Unemployment Rate

This document explores the real GDP growth, inflation rate, and unemployment rate of Australia, UK, and Greece in the global economy. It analyzes the impact of the global financial crisis on these countries and their recovery. The document also discusses the per-worker production functions and the role of technological improvement in economic growth. Additionally, it examines the government's role in promoting economic growth and the challenges faced by poor countries.

Running head: GLOBAL ECONOMY
Global Economy
Name of the student
Name of the University
Author’s Note

1GLOBAL ECONOMY
Table of Contents
Answer 1.1.......................................................................................................................................2
Answer 2:.........................................................................................................................................8
2.1................................................................................................................................................8
2.2................................................................................................................................................8
2.3................................................................................................................................................9
2.4................................................................................................................................................9
2.5................................................................................................................................................9
2.6..............................................................................................................................................10
2.7..............................................................................................................................................10
Answer 3:.......................................................................................................................................11
3.1..............................................................................................................................................11
3.2..............................................................................................................................................11
3.3..............................................................................................................................................11
3.4..............................................................................................................................................12
3.5..............................................................................................................................................12
3.6..............................................................................................................................................12
References:....................................................................................................................................13

2GLOBAL ECONOMY
Answer 1.1
1) Rate of growth of real GDP for UK, Australia and Greece
Real GDP growth refers to themarket value of final products and services produced
within the economy during a specific year adjusted for inflation (Salvatore 2013). It is also
referred ton as real economic growth rate, which provide proper measure that is not distorted by
deflation or inflation (Brueet al. 2014). The real GDP growth rate for all the three countries
reflect that the growth rate declined during the global financial crisis that was during the period
2008-2009.
The real GDP growth rate of Australia reflects that the economic growth of this nation
had been quite stable over the last twelve years. The global financial crisis during the period
2008-2009 affected this nation slightly, thereby keeping the growth rate positive. This is shown
in the figure given below-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.83
3.77 3.65
1.92 2.05
2.45
3.89
2.63 2.55 2.35
2.82
1.95
REAL GDP GROWTH RATE OF AUSTRALIA
REAL GDP GROWTH RATE OF AUST...
YeAR

3GLOBAL ECONOMY
The real GDP growth rate of UK hadbeen quite stable after the GFC. The GDP growth
rate of UKhad shown negative value during the recessionary period (2008-2009), which
highlights that the economic growth declined at high rate. After this period, the UK economy
recovered and thus economic performance of this country improved
. This is shown in the graph below-
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
2.45 2.35
-0.47
-4.18
1.69 1.45 1.48 2.05
3.05
2.34 1.93 1.78
REAL GDP GROWTH RATE OF UK
REAL GDP GROWTH RATE OF UK
YEAR
During the year 2006-2017, the real GDP growth rate of Greece fluctuated at a high rate.
The real economic growth rate of this country had shown negative value during the period 2008-
2013. The growth rate became positive during the year 2014 but again went negative during
2015 and 2016. However, the GFC had adversely affected this economy even after the year 2009
for which the economy has been struggling to recover from this at present. The figure below
reflects the economic performance of Greece over the last twelve years.

4GLOBAL ECONOMY
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
5.65
3.27
-0.33
-4.3 -5.47
-9.13
-7.3
-3.2
0.7 -0.29 -0.24 1.35
REAL GDP GROWTH RATE OF GREECE
REAL GDP GROWTH RATE OF GREECE
YEAR
2) Inflation rate of Australia, UK and Greece
Inflation rate of the country measures the rate at which average price level of the selected
goods and services basket in the economy enhances over a certain time period. It indicates
decline in purchasing power of the nation’s currency (Laibson and List 2015). As the price
increases, it begins to affect the cost of living for public and proper monetary authority of the
nation. The graph below reflects that the inflation rate in both UK and Australia had been quite
stable during the period 2006-2017 but the inflation rate of Greece fluctuated at high rate after
the GFC.
The inflation rate of UK hadbeen quite stable during the period 2006- 2014, reaching all
time high in the year 2011 at 4.46. In the year 2015 and 2016, the inflation rate went to 0.05%
and 0.6% respectively, which was the lowest for the decade. However, this impact had been also
reflected in UK monthly CPI (consumer price index).

5GLOBAL ECONOMY
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
1
2
3
4
5
INFLATION RATE OF UK
INFLATION RATE
OF UK
YEAR
The inflation rate in Australia had been stable during the last twelve years, reaching all
time high at 4.35% in the year2008. According to the Australian Bureau of Statistics, the country
experienced average inflation rate of around 2% during the period 2006-2017. Even though GFC
increased the inflation rate of this country in 2008, the nation recovered by reducing the inflation
rate to the set target rate by RBA (Reserve Bank of Australia) that is 2%.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
3.55
2.32
4.35
1.77
2.91 3.3
1.76
2.45 2.48
1.5 1.27
1.94
INFLATION RATE OF AUSTRALIA
INFLATION RATE OF AUSTRALIA
YEAR
The graph below shows that the inflation rate of Greece has been high before and after
GFC. The rate declined to negative during the period 2013 to 2016 but again became positive in

6GLOBAL ECONOMY
the last year. This shows that the consumer price index of this county fluctuated at a high rate
over the last twelve years.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-3
-2
-1
0
1
2
3
4
5
6
INFLATION RATE OF GREECE
INFLATION RATE OF GREECE
YEAR
3) The unemployment rate of a country refers to the percentage of total unemployed
laborers in total labor force (Taussig 2013). The Australia unemployment rate had been quite
stable during the period 2006 to 2017. During the GFC, the rate increased but again it declined
after the period 2008-2009.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
1
2
3
4
5
6
7
UNEMPLOYMENT RATE OF AUSTRALIA
UNEMPLOYMENT RATE OF AUSTRALIA
YEAR

7GLOBAL ECONOMY
The unemployment rate of UK had been quite high during the last few years. The rate
increased after the GFC that is from 2009 to 2014 but again declined after that ped came towards
set target rate that is 5%.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
1
2
3
4
5
6
7
8
9
UNEMPLOYMENT RATE OF UK
UNEMPLOYMENT RATE OF UK
YEAR
Before the GFC, the unemployment rate of Greece had been quite stable. But the
unemployment rate of this country became high after the GFC, hitting all time high in the year
2013 at 27.47.
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0
5
10
15
20
25
30
UNEMPLOYMENT RATE OF GREECE
UNEMPLOYMENT RATE OF GREECE

8GLOBAL ECONOMY
Answer 2:
2.1
The above diagram represents the per-worker production functions. This represents the
relationship capital per hour worked with real GDP per hour worked. For a particular production
function, technology remains constant. In this situation, as capital per hour worked increases,
real GDP per hour worked increases as well (McCombie and Thirlwall 2016). However, at first
this real GDP per hour worked increases at an increasing rate though after certain point it
increases at a decreasing rate. For this reason the per-worker production function becomes
concave to the horizontal axis.
2.2
According to this diagram, real GDP per hour worked changes as capital per hour worked
increases. This causes a movement along a particular production function. In the above figure,

9GLOBAL ECONOMY
this movement happens from point A to point B though technology of productions remains
constant (Mankiw 2015). Therefore, capital per hour worked increases from $ 40000 to $ 60000
while real GDP per hour worked increases from $ 575 to $ 675.
2.3
When the per-worker production function shifts from B to C, real GDP per hour worked
increases at same level of capital per hour worked, due to technological improvement (Dorn et
al. 2017). Therefore, the entire production function shifts upward from 2 to 3. At production
function2, the amount of capital per hour worked is $ 60000 at pint B while the amount of GDP
per hour worked is $ 675. Due to shifting of production function, at the same level of capital per
hour worked, the amount of real GDP per hour worked increases and becomes $ 775.
2.4
The upward slopping portion implies that workers can produce more outputs due to
increasing capital per-hour worked. This means both standard of living of workers and sustained
economic growth will increase in the long-run.
2.5
The New Growth Theory of Paul Romer has provided a key determinant regarding
economic growth. According to this theory, economic agents, such as businesses or people can
influence the economic growth actively instead of technological improvement (Feldman and
Storper 2018). In this context, the economist has said that through producing good ideas labor or
businesses can earn more output.

10GLOBAL ECONOMY
2.6
The government can take proper policies in order to increase the size of key determinants
provided by Romer in his New Growth Theory. The chief purpose of the government is to
promote government ideas through applying economic agents properly. Therefore, the
government can take provide proper facilities to skill employees so that they generate innovative
ideas. Secondly, the government can provide subsidy to adopt technological improvement by
these firms. Thirdly, the government can provide reduce taxes on firms so that they can take new
ideas for further innovation.
2.7.
Poor countries have experienced slow economic growth due to lack of capital
accumulation and innovative ideas. This lower rate of capital per hour worked tends the real
GDP per hour worked to decrease further. Moreover, lack of exchange of ideas tends economic
agents of these developing countries to produce less amount of output while technology also
remains constant.

11GLOBAL ECONOMY
Answer 3:
3.1
When the economy is at point d, the short-run aggregate supply curve is SAS1 and
aggregate demand curve is AD0. However, to obtain potential economic condition, the economy
will shift through increasing its aggregate demand curve from AD0 to AD1 (Goodwin et al.
2015). Therefore, in long-run the economy will be at point c. The short run situation represents a
recessionary gap when the economy has more potential to produce more output during long run.
3.2
In this situation, the Reserve Bank of Australia needs to take expansionary monetary
policy for dealing with the shot-run situation, when the economy is in recession (Mendoza 2017).
In this type of money supply the RBA can increase the supply of money through purchasing
government bonds.
3.3
In this type of money supply, interest rates reduce for which banks can provide more
loans to firms. Consequently increasing investment tends total output of firms to increase further.

12GLOBAL ECONOMY
As a result, total national income and employment increase which in turn increases consumer
spending. Therefore, the supply of money will be increased within the economy. In case of open
market operations, the central government will purchase bonds from market to increase money
supply. These excess supply of money insist people and firms to increase aggregate demand
through purchasing new products.
3.4
Through this expansionary type of monetary policy, the RBA can increase output or real
GDP and price level of the economy (Riccetti, Russo and Gallegati 2017). On the contrary,
expansionary monetary policy can tend unemployment in Australia to decrease further.
3.5
The impact of chosen monetary policy on aggregate demand curve can be described with
the help of above diagram (Hsing 2017). The curve shifts from AD0 to AD1 due to this type of
monetary policy.
3.6
If the selected monetary policy of the RBA has a desired impact on aggregate demand
(AD) and on the economy as a whole then at point c the economy will be both in long-run and
short-run equilibrium.

13GLOBAL ECONOMY
References:
Brue, S.L., McConnell, C.R., Flynn, S.M. and Grant, R.R., 2014. Essentials of economics.
McGraw-Hill Irwin.
Dorn, D., Katz, L.F., Patterson, C. and Van Reenen, J., 2017. Concentrating on the Fall of the
Labor Share. American Economic Review, 107(5), pp.180-85.
Feldman, M.P. and Storper, M., 2018. Economic Growth and Economic Development:
Geographical Dimensions, Definition, and Disparities. The New Oxford Handbook of Economic
Geography, p.143.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
Hsing, Y., 2017. Is Currency Depreciation or More Government Debt Expansionary? The Case
of Thailand. Journal of Advances in Economics and Finance, 2(4), p.237.
Laibson, D. and List, J.A., 2015. Principles of (behavioral) economics. American Economic
Review, 105(5), pp.385-90.
Mankiw, N.G., 2015. Yes, r> g. So what?. American Economic Review, 105(5), pp.43-47.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments
constraint. Springer.
Mendoza, W., 2017. Teaching Modern Macroeconomics in the Traditional Language: The IS-
MR-AD-AS Model. Pontificia Universidad Católica del Perú. Departamento de Economía.

14GLOBAL ECONOMY
Riccetti, L., Russo, A. and Gallegati, M., 2017. AD-AS Representation of Macroeconomic
Emergent Properties. In Introduction to Agent-Based Economics (pp. 65-86).
Salvatore, D., 2013. International economics. John Wiley & Sons.
Taussig, F.W., 2013. Principles of economics (Vol. 2). Cosimo, Inc..