Impact of Interest Rates and Inflation PDF

ASSESMENT ON GDP OF
AUSTRALIA

Table of Contents
INTRODUCTION................................................................................................................................3
TASK 1.................................................................................................................................................3
1. Explain what a country’s GDP is and how it can be measured...............................................3
TASK 2.................................................................................................................................................5
2. Critique what economic growth means for a country.............................................................5
TASK 3.................................................................................................................................................7
3. Analyse the relationship between labour markets, inflation and economic development......7
TASK 4.................................................................................................................................................9
4. Investigate the basic principles of the financial markets and the impact of interest rates and
inflation.......................................................................................................................................9
CONCLUSION..................................................................................................................................10
REFERENCES...................................................................................................................................11

INTRODUCTION
GDP stands for Gross Domestic Products, as it is the total value of goods and services which
are produced with in the boundaries of a specific nation. For example, total value of the products
and services produced by Australia under their nation boundary will be their GDP. For a nation it is
very much important to have high GDP, as this help them in gaining knowledge about the
development rate of their country. Australia is one of the well developed nations of the world,
whose maximum domestic products and raw materials is exported in China market. In this regard,
any decrease or increase in China's GDP rate will impact on economy of Australia also. The present
report is going to critically made a discussion on this topic, that argued on China's slow growth rate
may decrease Australian economy in 2019 to over 3%. Along with this, a study will take place on
importance of economic growth for a nation (Antal and van den Bergh, 2014). Also, relationship
between labour market, inflation and economic development will come in study. Along with all this,
some basic principles of the financial markets and the impact of interest rates and inflation.
TASK 1
1. Explain what a country’s GDP is and how it can be measured.
GDP stands for Gross domestic products, it is known as the complete market value of
products and services, which are developed by different organisations performing their operations in
boundary of nation. As GDP is very much important for a nation, it play a vital role in measuring
the total economy of a nation. It help the nation in finding the total dollar value of goods and
services produced by them in a particular time period. For a nation, it is very much important for
them to have to a constant growth in their GDP rate, as this will help them in making improvement
in their economical conditions, so that they can develop on regular basis. Australia is one of the
most developed nations of the world, and they have high GDP rate in last few years. This nation
mainly export its domestic products in China's market therefore, dependence on Chinese economy
is considered as blessing for Australian local economy, that improves living standard of local
communities. GDP of nation was highest in year 2013 and was 1.57 lac corers USD, but it has been
analysed that in year 2019, total GDP of nation will get decreased by about 3 percent (GDP of
Australia, 2019). As per report given by Fitch Solutions, it has been estimated that weakening
housing market as well as slowdown of economy of China results in decreasing the Australian GDP
because due to back of a continued slowdown in growth of Chinese market will directly impact on
demand for Australia’s exports that includes mainly mining products. The biggest exports of
Australia's domestic product are coal and iron ore therefore, both manufacturing industries of
developing and developed countries are mostly depended on export of this nation. It majorly

exports such products to China market i.e. near about 31pc of goods, Japan includes 13pc and over
6pc in South Korean market (Australia's fortunes are linked to China's economy — for better or
worse. 2019). But due to trade war, economy of these three countries are majorly impacted that
results in slowdown of economy. Therefore, GDP rate of Australia may also decreases in current
year (2019) due to such conditions.
Also, GDP has been divided into two different parts, one is nominal and another is real.
They both are very much related but not same, when a nation like Australia use to describe their
GDP, then it do not clear which type of GDP it is. In major cases, GDP declared by a nation is
nominal GDP (Asher and Bali, 2015). It is a type of GDP where nation use to consist both prices
and growth of that nation. Where as, real GDP of a nation consist only growth of that country.
Difference between nominal GDP and real GDP is given beneath :-
Basis for Comparison Nominal GDP Real GDP
Meaning Nominal GDP is a type of GDP
which have all the aggregated
values of products and services
produced in boundaries of a
nation in some specific time
period.
Where as, real GDP is a type of
GDP which consist of only true
growth of the nation after
producing all these products
and services.
What is it? This is a type of GDP which do
not have any affect of inflation
on them (Bajada, 2017).
Where as, this GDP is defined
after making all the adjustments
of inflation.
Expressed in Nominal GDP is expressed in
the prices of products and
services in current year only.
While on other hand, real GDP
is expressed on the basis of
constant prices or can be on
prices of products and services
in base year.
Value The value of nominal GDP is
comparatively higher than real
GDP.
The value of real GDP is
generally low as compared to
nominal GDP of a nation.
Uses This is used by a ntion, so that
they can a comparison between
different quarters of a year.
Where as, real GDP is used for
making comparison between
two or mow different financial
years.

Economic growth By the use of nominal GDP it is
very difficult for a nation to
make analysis of economic
growth of nation.
While on other hand, real GDP
is known as very good
indicator, which helps a nation
in analysing their economical
growth.
GDP stands for Gross Domestic Products, it is the sum of total value of products and
services produced under nation boundary, as it very much important for a country like Australia to
maintain their GDP, so that they can maintain their economic conditions (Cordesman and Toukan,
2014). Also, there are different methods which they can use to measuring the GDP of nation, the
most common method which is used for this is expenditure methods, where factors like
consumption, investments, government expenditures and import and export are considered. Formula
of this is given below :-
GDP = Consumption + Investment (government spending) + (Export – Import)
As, this is the most easiest method for detailing that what is the total economy which is
generated by a nation. In this, total consumption of the nation get added with spending made on
government of that nation, along with this cost of material which is exported by nation also get
added into it. After all these additions, import made by nation in that time period will we done, so
that total economy generated by nation in that time period can get determined. Another method
which government of Australia can use for measuring their GDP is measure the total income
payable in GDP (Dranitsaris and Papadopoulos, 2015). This is the method which is very much
similar as expenditure method. This method consist some factors like rent, interests, profits,
statistical adjustments (like corporate income taxes, dividends, undistributed corporate profits) and
wages. Beneath is formula which is used by a nation for determining the GDP of them via measure
the total income payable in GDP method :-
GDP = Rent + interests + profits + statistical adjustments (like corporate income taxes,
dividends, undistributed corporate profits) + wages.
TASK 2
2. Critique what economic growth means for a country.
Economic growth refers to the increase in total economy of nation and also increase in total
value of products and services which different organisations use to produce in their boundaries.

Also, it is defined as over all percentage growth in Real GDP of that nation (Yoshino, Morgan and
Wignaraja, 2015). This is a type of growth which is generally measured and calculated in terms of
inflation and adjustments, which use to take place in market values of different products and
services. There are ample number of factors which can affect the growth of economic conditions of
a nation, but the major factors that can affect these are increase in productivity and increase in
population of that nation. Australia is a small nation and have good space which help organisations
in expanding their businesses according to needs and demands of customers. This help them in
increasing their productivity and also help them in serving ample number of customers by different
products and service they use to produce. Along with this, they try to produce some thing new and
unique for market place, so that they can fulfil the daily needs of their customers and also this help
them in attracting ample number of customers towards it (Dunlop and Radaelli, 2016). This all help
that organisation at business environment of Australia to generate huge amount of revenue by
increasing their sales and also help them in gaining high amount of profits. As this all lead them in
growing and developing their business and also help them in making huge contribution in economy
of Australia. Development in business of nation help them in increasing their productivity and also
help them in making improvements to economic conditions of that nation.
Along with good space in diversity in demands of customers, another factor that affect the
economic growth of nation is their population. As growth in population help a nation like Australia
in increasing their economy and also help in increasing GDP of nation. Australia is a small place
and also the population there is very low, but with the time, number of people in society is
increasing their, this will help them in increasing the rate of consumption. Also, it will help
organisations to produce more products and service which they can offer to their customers. As
increase in rate of consumption and also increase in over all productivity of nation will help
Australia by improving the economic conditions of them (Hasmath, 2015). Therefore, it can be said
that increase in productivity and also increase in population of a nation help them in making
improvements to their economic conditions and also help them in increasing their rate of GDP. As
China has become more important part for global economy of Australia over the last two decades
due to export the mineral products over here. Therefore, in this regard, economic growth of both
countries are highly interrelated with each other. As per the graph given below, it has been analysed
that economic links are considered as most likely to be important avenue in terms of spillovers to
financial markets of Australia to China, particularly through direct channel. Here, figure has
depicted that trade of Australia with China has rapidly grown rapidly from last few decade. Along
with this, exports to China are accounted to be near about 30% of entire Australian exports. In this
regard, demand of Australian domestic products from China has put a large effect on equilibrium
prices of commodities that are sold to other countries also. It has represented that developments of

China's economy often have implications for Australian industrial profitability also. Furthermore,
demand for Australian dollar as well as outlook for its monetary policy, economy and all has
affected the prices in financial markets of respective nation also. Therefore, any slowdown in
China's economy will directly affect the financial market of Australia due to high dependence.
Also, economic growth is very much important for a nation like Australia, as they help them
in increasing employment opportunities for the society, so that they can work and earn some thing
for their daily needs and requirements. As increase in employment opportunities leads to decrease in
rate of unemployment at market place. Along with this, it help nation in generating huge revenue
from taxes paid to them, as this results in increasing the standard of public services of nation by
making investments and expenditure on resources of them (Washington and Twomey, 2016). Along
with this, it help that nation by increasing the level of consumption, so that productivity can get
increased. This will results in encouragement for businesses which use to perform their operations
at business environment of Australia, so that they can make more investments in their resources and
increase productivity of them. This all help them in fulfilling the needs of their customers and also
help them in increasing their revenue and profitability.

TASK 3
3. Analyse the relationship between labour markets, inflation and economic development.
Labour market : It is a place in market where ample number of workers and
employees come together and also several employers try to hire these employees and workers which
have best skills according to their needs. Along with this, it is a place where workers and employees
try to get a job which can fulfil their needs and also can satisfy them in terms of job. In other words,
it can be said that the market where supply and demand of labour take place. As here, employees are
the supply and employers are the demand (Kucukvar, Egilmez and Tatari, 2014). With reference to
the provided scenario that is projection of decline in GDP of Australia by 3% in 2019. The main
reason of this decline is not only slowdown of Australia but it is also due to slowdown of China's
market. It can be said that, if China's labour market drops then there are probable chances that
Australia will also not get effective labour force which they are hiring from China. As a result, there
work will slow down at highest. Along with this, it can be further said that this decline will also
hamper operational activities of Australia as the country is not having reliable workforce who could
execute work of Australian companies.
Inflation : In general terms, inflation is known as changes (generally increase) that took
place in the prices of products and services produced in boundaries of nation in some specific time
period. It is essential for a nation like Australia to have proper inflation rate, as it is helpful them in
growing their business and also their economy with a good speed, so that the total economical
conditions of nation can get improved. According to the provided scenario, it has been analysed that
the main source of income for Australia is exporting, but if China's inflation rate decreases then it
will directly influence exchange rates. Along with this, decreasing inflation rate will result in
decline of currency rate. As a result, it can be said decreasing inflation rate of china directly
influences Australia's exporting activities.
Economic development : It is the improvement and development that took place in
economical conditions of nation, so that they can improve their economical, political and social
aspects of nation. As this help them in improving the works for well being of people of nation. It
has been evaluated that if Australia will not be able to export its product on minerals to China due
inflation rates then it will also become barrier in its development. This is because, if inflation
decreases in China then it would directly reduce purchasing power of its citizen as a result they will
not import goods from Australia. Therefore, it can be said that if Australia will not export there
goods then they will not get proper financuial sources to enhance their economic development.
All of the provided terms are highly interrelated to each other. This is because, labour

market is a place which help employers in providing opportunities to workers and employees in
getting job, which can fulfil their needs and demands and also can satisfy them in terms of job. If a
Australia will not get proper labour market then it would not be possible for them to execute
business activities and produce satisfactory final products. This ultimately influences company in
hiring employees from other places which is quite expensive for them. As a result, it decreasing
prices of products in exporting country is seen as the decline in inflation rate. Further, it can be
said that if inflation rate decreases then it ultimately affects import and export activities as well as
purchasing power of customers. This places impact over economic development of the nation as
they are not having satisfactory amount of funds to develop their infrastructure.
This all results in high inflation rate in that nation, due to which organisations are able to generate
huge amount of revenue and also able to gain huge profits. As, these all are the reason behind
economical development of a nation, and also help them in making improvement to their political
and social aspects. So that they can develop and make investments for well being of them.
Therefore, for Australia it is very much important for them to handle all of these factors, as
disturbing one element will pose some affect on other and in the last it will affect the GDP of them
(Nong, Meng and Siriwardana, 2017). As in January 2019, the inflation rate of them has come to 1.3
percent from 1.8 percent, this will result in decrease to rate of GDP and also leads to decrease in
inflation rate of them.
TASK 4
4. Investigate the basic principles of the financial markets and the impact of interest rates and
inflation.
Financial market is a place where trade of security take place like, equities, bonds,
currencies, and derivatives occur. The most popular and oldest financial market of the world is
Financial Market of New York, where trading took place on face to face conversation. There are
different type of financial market, some of them are as follow :-
1. Over the Counter market : This is the place where small organisations of the nation use to
provide their security bonds (Salahuddin and Alam, 2015). Also in this organisations are
listed which are not part of New York Stock Exchange.
2. Financial market for bond : This is the place where, an investor use to make investment of
their funds for some specific time period and also at some fix interest rate.
3. Money Market : It is a part of financial market, where trade took place at high liquidity and
also the maturity period is very short.

Basic principles of financial market :-
1. Be forward looking : It is very much important for an organisation and for investor at
financial market to thing in future, as this will help them in making analysis of future
conditions of that financial market. As this help them in investing accordingly.
2. Focus on the medium term : In financial market, it is very much important for them to
monitor the medium term inflations not on short term inflations.
3. Firmly anchor inflation expectations : For this, financial market have to adopt monitory
policies, so that they can maintain the flow of funds and it's position in effective manner
(Sarkodie and Strezov, 2018).
4. Be broad base : For financial market it is very much important for them to have broad base
and also to have proper monitory policies. As this will help them in monitoring the
economic condition of market in proper manner.
Inflation is the change in total value and prices of products and services produced under
boundaries of a nation. As it also affect the financial market of that nation. As, increase in total
value will lead to boom in financial market and help them in generating huge amount of revenue, so
that the economy of nation can get improved. Also, interest rate is related to financial market and
also with inflation that use to took place in nation. As high rate of inflation leads to increase in
demand of fund and also leads to increase in interest rate (Shahiduzzaman, Layton and Alam, 2015).
Along with this, high interest rate will results in increase in demand at financial market, so that
ample number of people can make investment and also can gain some profits. Also, this leads to
increase in rate of revenue and help market in getting huge profitability, which results in
improvements in economic conditions of nation. With reference to the provided scenario, it can be
said that China is going through a trade war, that means the country have planned to initiate tariffs
while trading with other countries. This have made it expensive for Australia as well as other
nations to execute their transaction without any Tariff. This decision of China have slowdown
working activities of China. This might become reason of decline of Australia's GDP by 3% in
2019.
CONCLUSION
From the above discussion, it has been concluded that, GDP is very much important for a
nation, as it help them in detailing about the economic conditions of them. It has been analysed that
GDP of host country is totally dependent on trade of that country where they are exporting their
maximum of domestic products. Along with this, it can be further said that inflation, labour market

of country also influences economic development of the nations. Also it has been concluded that,
economical growth is very much important for a nation, as it help them in developing their social
and political factors. Also, labour market and inflation have huge impact on economic growth of a
nation. Along with this, interest rate and inflation have impacts on financial market.
REFERENCES
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Online
GDP of Australia. 2019. [Online]. Available Through :
<https://tradingeconomics.com/australia/gdp>./
Australia's fortunes are linked to China's economy — for better or worse. 2019. [Online]. Available
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