Macroeconomics Performance of Australia

Running head: MACROECONMICS PERFORMANCE OF AUSTRALIA
Macroeconmics Performance of Australia
Name of the Student
Name of the University
Course ID

1MACROECONMICS PERFORMANCE OF AUSTRALIA
Executive Summary
The report intends to evaluate performances of Australian economy over a relatively longer
horizon. Selected sample period for the study ranged from 1995 to 2015. Economic performances are
evaluated in terms of real GDP, inflation, unemployment, interest rate, exchange rate and cash rate.
The report examines the relationship of real GDP growth to that of unemployment and inflation. The
monetary policy decision of the economy has been analyzed in terms of movement in cash rate.
Following the close economic and political relation between Australia and US, cash rate in Australia has
been influenced by fund rate in United State. Australian government designs monetary and fiscal policy
to maintain stability among different economic indicators. Based on the past performances, the paper
attempts to design outlook for the Australian economy.

2MACROECONMICS PERFORMANCE OF AUSTRALIA
Table of Contents
Introduction.................................................................................................................................................3
Relationship between real GDP growth rate, inflation and unemployment rate........................................3
Real GDP growth and inflation................................................................................................................4
Real GDP growth and unemployment.....................................................................................................5
Business Cycle..........................................................................................................................................6
Relation between net export and exchange rate between Australia and United State...............................6
Relation between Cash rate and Federal fund rate.....................................................................................8
Economic explanation for relationship between real GDP growth and other indicators...........................10
Macroeconomic outlook of Australia........................................................................................................10
Recommendation......................................................................................................................................10
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12

3MACROECONMICS PERFORMANCE OF AUSTRALIA
Introduction
Macroeconomic performance of a nation depends on performance trend of several important
aggregate indicators. Some important indicators for measuring economic performances include
aggregate output, unemployment, price level, trade balance or net export, strength of the currency and
such others. Aggregate output of a nation is measured in terms of Gross Domestic Product. Real GDP is
an inflation-adjusted measure of aggregate output involving estimation using a fixed base year (Heijdra,
2017). Measure of unemployment is used to understand the condition of labor market. Movement of
price level can be understood by observing the trend in inflation rate. Movement of exchange rate and
net export are the two important determinants of stability in the external sector.
Australia one of developed nations that has made outstanding economic progress within a
relatively small period. Service sector is the most important sector of the economy. Another important
sector providing huge support to the economy is mining (Measham, et al., 2013, pp.184-194). The large
stock of mineral resources is the backbone of the mining. Australia is an open economy that largely
depend on trade for its economic growth. The report briefly discusses macroeconomic performance of
Australia from 1995 to 2015 using different indicators such as real GDP growth, inflation,
unemployment, interest rate, exchange rate and net export.
Relationship between real GDP growth rate, inflation and unemployment rate
An important macroeconomic indicator for identifying trend in aggregate output is the gross
domestic product of the nation. GDP refers to a composite measure estimating monetary value of goods
and services that a nation produces in a given year. Values of goods and services are determined by
valuing each items in terms of the market price of the respective goods and services. If goods and
services are valued at current year market prices, then it is called nominal GDP (Agenor and Montiel,
2015). GDP obtained through valuing goods and services using market price of fixed base year is termed
as real GDP. Now, growth in real GDP is the rate of change in real GDP over time. Being a measure of
aggregate economic output, growth in GDP is expected to have a relation with other economic
indicators. Two such indicators are rate of inflation and unemployment rate. An increase in real GDP
indicates progress in economic activity. As GDP increase, average income increases, which causes an
increase in aggregate demand resulting in demand-pull inflation. Inflation resulted from supply side
factor in contrast causes aggregate output to fall by increasing cost of production. Unemployment,
which measure the performance of labor market, is also influenced by GDP (Sadat, 2017, pp.635-639).
An increase in GDP implies expansion of economic activity, which in turn lower unemployment by
creating new job opportunities. Unemployment in contrast increase during economic slow-down.