Macroeconomics: Current Events, GDP, Labor Market and Price Movements

This article covers the current events affecting the Australian economy, GDP highlights, labor market highlights, and price movements. It discusses the recent decline and recovery of the Australian dollar, the dynamics of GDP, the gradual decline in unemployment, and the trend in inflation rate. It also includes a figure on the percentage change in Melbourne residential property prices. The article concludes with a discussion on the impact of higher prices of tobacco and alcohol on consumers and the economy.

Running Head: MACROECONOMICS
Macroeconomics
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1MACROECONOMICS
Table of Contents
Current events..................................................................................................................................2
GDP Highlights...............................................................................................................................3
Labor market highlights...................................................................................................................4
Price movements..............................................................................................................................5
References........................................................................................................................................7

2MACROECONOMICS
Current events
Australia being one of the most open economies is affected from economic events that
takes outside domestic economy. Exchange rate is an important macroeconomic variable that
affects both domestic and external economies. Recently value of Australian dollar recorded a
sharp decline before reaching to a higher level. The turmoil in Australian dollar is result of a
number of global event. In the beginning of the trading week, value of Australian dollar
remained mostly unchanged. However, Asian trade has received another round of shock
following selling off in Yuan. With this the lost value of Aussie dollar against US has regained
(businessinsider.com.au 2018). Turnaround in China’s financial market and weakness of US
dollar help to strengthen the value of Australian dollar. The US president Donald Trump has
made two Tweet announcement which significantly affect dollar value. The President is in the
view that European and other Asian trading partners by manipulating currencies and interest rate
reduces competitive edge of US in the international market. With this announcement has also
been made regarding imposition of huge tariff on import from these nations (nytimes.com 2018).
Both Tweets have weighted away value of US dollar.
Movement in exchange rate likely to affect the domestic economy through the channel of
export and import. Appreciation of Australian dollar makes the import cheaper benefitting
consumers and manufacturers using imported inputs (Bernanke, Antonovics and Frank 2015).
This however might hurt Australian export by raising the price of exported items. The ultimate
effect of the event depends on the dynamic movement and volume of export and import.

3MACROECONOMICS
GDP Highlights
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
GDP growth rate
Year
Growth
Figure 1: Growth rate in GDP (1990- 2017)
 As observed from the trend growth rate, GDP growth has declined slightly from 2.83% in
2016 to 2.06 percent in 2017. The dynamics of GDP depends on movement of four major
components that is consumption, investment, government spending and net export.
 Government expenditure for both consumption and capital goods has increased over time.
As against government spending final consumption expenditure has recorded a slow
growth. After three consecutive years of decline in 2014, 2015 and 2016, Gross fixed
capital formation has shown a small recovery in 2017. Because of higher import, import
volume exceeds that of export constituting a negative trade balance.

4MACROECONOMICS
Labor market highlights
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Unemployment rate
Year
Unemployment rate
Figure 2: Trend in unemployment rate (1990-2018)
 As observed from the trend unemployment rate, the economy has recorded a gradual
decline in unemployment. Total number of employed persons increases significantly with
male employment increases that of female employment. The full time employment
though initially decreases for both males and females but in recent years’ engagement in
full time work has increased.
 Increase employment in part time jobs also contributed to a low level of unemployment.
Female members of the labor force tend to be engage in part time works as compared to
their males’ counterpart.

5MACROECONOMICS
Price movements
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
Inflation rate
Year
Rate of Inflation
Figure 3: Trend in inflation rate (1970-2018)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0
0.02
0.04
0.06
0.08
0.1
0.12
Percentage change in Melbourne property price
Percentage change
Year
Percentage change
Figure 4: Percentage change in Melbourne residential property

6MACROECONOMICS
In the category of CPI, Alcohol and Tobacco price has recorded largest increase. Prices in
this category has increased by 6.96 percent in the first quarter of 2018 as against 6.10 percent in
the previous year. An increase in Tobacco and Alcohol prices may be a good sign as it can help
to reduce consumption of such harmful items. However, the effect on consumption depends on
the nature of demand elasticity. With inelastic demand, the burden of higher price is mostly born
by consumers (Cowell 2018). The high price of these items has a more severe impact on poorer
section of the economy.

7MACROECONOMICS
References
Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-Hill
Higher Education.
Bradsher, K. (2018). Trump’s Tariffs Are Changing Trade With China. Here Are 2 Emerging
Endgames.. [online] Nytimes.com. Available at:
https://www.nytimes.com/2018/08/08/business/trump-trade-china.html [Accessed 10 Aug.
2018].
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Scutt, D. (2018). Donald Trump's latest tweetstorm has pushed the Aussie dollar higher. [online]
Business Insider Australia. Available at: https://www.businessinsider.com.au/fx-currency-
australia-dollar-aud-donald-trump-tariff-fed-usd-2018-7 [Accessed 10 Aug. 2018].