Major Project in Economics

This major project in economics examines the economic slowdown in Australia and its impact on GDP growth rate. It analyzes an article from ABC NEWS and discusses relevant economic theories like AD-AS model, unemployment theory, and inflationary pressures. The project concludes with recommendations for future research.

Major Project in Economics
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Table of Contents
Introduction......................................................................................................................................3
Outline of relevant theory................................................................................................................3
Analysis...........................................................................................................................................5
Conclusions......................................................................................................................................6
Reference List..................................................................................................................................7
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Introduction
The aim of this study is to examine an article and for examining purpose the study has selected
article from ABC NEWS which is a renowned Australian Broadcasting Corporation which is
new division of American Broadcasting Company. The title of the article selected is
“Australia's economic slowdown heading to GFC levels as GDP growth continues to drop”.
This article is published in Australian Broadcasting Corporation (ABC NEWS). Stephen Letts
who is a business reporter wrote the mentioned article in the study and the news is published on
2nd June 2019 (ABC News, 2019). As the title says, Australian economy is showing slowdown
because of the drop in GDP growth rate. The article from ABC news shows that GDP growth in
Australia is very weak, the main theme of the article is negative rate recorded in different sectors
of Australia, and these are retail sales, construction work and the new business investment
private. The article has also portrayed the trade position of Australia, which displays that trillions
has disappeared from the trade bundle of the country. The phenomenon that is appropriate for the
study from the article is the GDP positioning by focusing upon the aggregate demand and
aggregate supply framework.
Outline of relevant theory
According to the article GDP, position of Australia is weakening and this phenomenon can be
understood by applying the economic concepts like AD-AS model. The article has thrown light
into the government spending of the country, which shows that public sector spending is
growing, and the sectors in which the spending was conducted are the heath sector of the
economy and the transport sector for the development of the transport infrastructure. The
positive side that the article is it displays about the Australian economy’s trade surplus that is
recorded by the country in the first quarter. Net exports have increased with a drop in imports.
According to the article, the cash rate of Australia is also weakening and this straight away
indicates the relationship between the GDP growth rate and the other parameters of the country
such as the unemployment rate, consumer price index and many more. The most relevant theory,
which is applicable in the scene portrayed by the article in ABC news, is unemployment theory
and inflationary pressures.
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AD-AS framework is one of the significant tool that is used in economics that shows the
functioning of the economic factors. The economic theory like inflationary pressure upon the
economy shows that as the inflation rate is high economy then the economy remains in the boom
position of the business cycle and for this GDP growth rate increases. But as soon as the inflation
rate falls GDP growth rate falls indicating slowdown of the economy.
Diagram1 : AD-AS framework
(Source: Bianchi and Ilut, 2017)
The above diagram shows that as the price increases the AS curve shifts to the left and for this
GDP falls. According to the article cash rate of the economy is weakening, this indicates that
inflation rate is falling and for this GDP growth rate is slowing down in Australia.
Now considering the unemployment theory it can be seen that as soon as the fiscal policies
control the economic activities AD and AS are influenced and this is shown below.
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Diagram 2: Fiscal Policy
(Source: Tracy, 2017)
The above diagram shows that as the government spending increases the unemployment rate
reduces and according to the article government spending in Australia has increases in specific
sectors and for this reason, the unemployment rate here has reduced.
Analysis
The Australian economy is one of the most developed economies and over the last decades, the
GDP growth of the country rate has been able to maintain its modest position. However, the
chosen article displays that the GDP growth rate of the country is weakening and it is due to the
different issues faced by the economy. According to the study of Konstantakis and Michaelides
(2017), Australian economy is the developed economy and has been able to combat the 2007-
08’s Global Financial Crisis without any sign of scratch in the economy and the study has
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declared that Australia was being able to face the 2007-2008 Crisis because of its strong fiscal
and monetary policy. The article has shown that government spending of the economy has
increased and also the trade surplus phenomenon is achieved by the economy but still the GDP
growth rate has slowdown. Here it can be said that because of the increase in government
spending the public debt of the country has also increased that this directly has affected the GDP
rate. The study of Rutland (2018). have shown that Australian economy from the beginning is
maintaining a high inflation rate and low interest rate, here the government encourages the
population to consume more and this high inflation rate is the reason behind the high GDP rate
maintain by the country. However, the article has displayed that GDP rate has fallen along with
the cash rate. Thus, it can be said that the maintenance of the stable GDP by Australia over the
last decades may be impacted because slowdown of GDP rate which the article has displayed.
The article even mentioned that this slowdown may result in GFC position within the economy
because GDP rate is slowing continuously. Thus, it can be seen that stable position of the
economy will be heavily impacted.
Conclusions
From the above analysis on the article on Australia it can be said that the stability cannot be
maintained by the Australian economy and this is due to several reasons that the economy is
facing in the recent years. Australia over the decades have been able to maintain a high GDP rate
and was placed in boom position of the business cycle. This boom position occupied by the
economy is mainly due to high inflation rate. According to the article governments, pending and
net exports have increased by the GDP rate is losing down and this is due to cut down of the cash
rate by the central bank of the country.
Recommendations that can be provided for future research is studying the occurrence of
incidences like the relationship between unemployment and GDP growth rate of Australia will
be valuable because this will shed light upon the unstable GDP rate which is current concern of
the economy and the unemployment rate of the country more clearly.
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Reference List
ABC News. (2019). Economic slowdown heading to GFC levels. [online] Available at:
https://www.abc.net.au/news/2019-06-02/economic-slowdown-heading-to-gfc-levels/11166944?
section=business [Accessed 2 Jun. 2019].
Bianchi, F. and Ilut, C., 2017. Monetary/fiscal policy mix and agents' beliefs. Review of
economic Dynamics, 26, pp.113-139.
Konstantakis, K.N. and Michaelides, P.G., 2017. Technology and Business Cycles: A
Schumpeterian Investigation for the USA.
Rutland, P., 2018. The August 1998 crash: Causes and consequences. In Business And State In
Contemporary Russia (pp. 173-186). Routledge.
Tracy, N., 2017. The East Asian Financial Crash: Causes and Consequences. In Chinese
Business and the Asian Crisis (pp. 48-65). Routledge.
https://www.abc.net.au/news/2019-06-02/economic-slowdown-heading-to-gfc-levels/11166944?
section=business
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