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The paper conducts a study on economic performance of Australia. The economic variables of interest are real GDP, unemployment, real interest rate, inflation, export, import, exchange rate and inflation rate. A stable trend is observed in almost all the variables. The research also aims to find relation between GDP growth and each of these variables. The different indicators are directly or indirectly related with GDP growth. The relationship is analyzed in terms of summary statistics and pairwise time series graphs. Except inflation and real interest rate all the variables have positive association with GDP growth. Depending upon the current study and policy framework future prediction for Australian economy has been made.

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
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Executive Summary
The paper conducts a study on economic performance of Australia. The economic variables of
interest are real GDP, unemployment, real interest rate, inflation, export, import, exchange rate
and inflation rate. A stable trend is observed in almost all the variables. The research also aims to
find relation between GDP growth and each of these variables. The different indicators are
directly or indirectly related with GDP growth. The relationship is analyzed in terms of
summary statistics and pairwise time series graphs. Except inflation and real interest rate all the
variables have positive association with GDP growth. Depending upon the current study and
policy framework future prediction for Australian economy has been made.

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Table of Contents
Introduction......................................................................................................................................3
Summary Statistics of major macro variables.................................................................................3
Pair-Wise graph...............................................................................................................................5
Evaluation of relation between GDP growth and other macro variables........................................7
Prediction about macroeconomic outlook for Australia..................................................................9
Conclusion.....................................................................................................................................10
Reference list.................................................................................................................................11

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Introduction
Australian economy is considered as one of the biggest and highly developed economies
of the world. All the three sectors (agriculture, industry and service) have marked a rapid
progress over the last few decades. Mining builds up the main industrial base of the economy.
Australia produces and exports mineral like coal, iron ore, crude petroleum and others. In the
sectors, education, travel, financial and professional services are the main. As like most of the
developed countries, the economy of Australia shows high dependency on service sector (Aslani,
Rezaee and Mortazavi, 2017. The expansion of various industries and services has helped to
diversify the economy. Australia also actively participates in international trade and derives
considerable income from external sector. The internal structure of the economy and
uninterrupted growth experience has made the nation an attractive study of research.
Summary Statistics of major macro variables
Table 1: Summary Statistics
Real GDP growth rate
Inflation rate
Unemployment rate
Mean 3.10 Mean 2.68 Mean 6.73
Standard Error 0.23 Standard Error 0.28 Standard Error 0.36
Median 3.53 Median 2.49 Median 6.10
Mode #N/A Mode #N/A Mode 6.90
Standard Deviation 1.21
Standard
Deviation 1.46
Standard
Deviation 1.89
Sample Variance 1.46 Sample Variance 2.14 Sample Variance 3.58
Kurtosis 1.74 Kurtosis 2.47 Kurtosis -0.18
Skewness -1.21 Skewness 1.15 Skewness 0.88
Range 5.38 Range 7.02 Range 6.70
Minimum -0.38 Minimum 0.25 Minimum 4.20
Maximum 5.01 Maximum 7.27 Maximum 10.90
Sum
83.6
2 Sum
72.3
3 Sum
181.6
0
Count 27 Count 27 Count 27
Exchange rate
Real Interest rate
Net export
Mean 1.35 Mean 5.36 Mean 32.14
Standard Error 0.05 Standard Error 0.48 Standard Error 0.60
Median 1.33 Median 5.34 Median 32.18
Mode #N/A Mode #N/A Mode #N/A
Standard Deviation 0.24 Standard Deviation 2.48 Standard Deviation 3.12
Sample Variance 0.06 Sample Variance 6.13 Sample Variance 9.74

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Kurtosis 0.66 Kurtosis -0.73 Kurtosis -0.30
Skewness 0.69 Skewness 0.17 Skewness -0.47
Range 0.97 Range 9.02 Range 11.46
Minimum 0.97 Minimum 1.04 Minimum 25.61
Maximum 1.93 Maximum 10.07 Maximum 37.07
Sum 36.44 Sum 144.64 Sum
867.9
1
Count 27 Count 27 Count 27
Descriptive statistics offers a brief summary of the performance of different chosen
indicators. The various measures of summary statistics include a range of measure like average,
standard, range, maximum, minimum help to understand the overall movement of the variables.
Movements and distribution of variables provide useful insights about macroeconomic
performance of the economy.
Real GDP is an aggregate measure of total output at constant base year prices (Goodwin
et al., 2015). The mean of real GDP growth rate is obtained as 3.10. This implies for the chosen
time frame, the economy grew at an average rate of 3.10 percent. The accounted highest GDP
growth rate is 5.01 percent. The growth rate was achieved in 1999 (Azad et al., 2014). The
minimum growth rate is -0.38. the minimum growth rate also achieved in the decade of 1990.
During 1991, Australia experienced the slowest economic growth of -0.38 percent. Economic
growth during the entire period was ranged as 5.38. Standard deviation of the real GDP growth is
obtained as 1.21. As the standard deviation is lower than mean the measure of coefficient of
variation is less than 1 implies a relatively stable distribution of growth.
Inflation is an indicative measure of rate of change in the price level (Setterfield, 2016).
The average rate of inflation is 2.68. The average rate of inflation indicates that cost of living in
Australia has increased on an average rate of 2.68. The highest inflation rate if 7.27. the highest
inflation rate prevailed in 1990. As against this the lowest rate of inflation is 0.25 percent. The
economy experienced lowest inflationary pressure in 1997. With this the rate of inflation ranged
at around 7.02. For rate of inflation, a very small standard deviation is obtained with standard
deviation being 0.28. Lower standard deviation implies a lower volatility and hence, a relatively
stable distribution (Gillitzer and Simon, 2015).
The unemployment statistics reflect portion of labor market participants incapable to find
jobs at current market wage (Johnson, 2017). The mean of the unemployment rate is 6.73. The
mean unemployment rate indicates that for the period, 6.73% members of the labor force
remained unemployed. Standard deviation for unemployment rate is 0.24. Because of a relatively
higher average unemployment rate the coefficient of variation is less than 100 indicating a
relatively stable distribution. The unemployment problem is most severe during 1993 (Carvalho,
2015). The unemployment rate during this period was 10.90. Recorded unemployment rate
reached to the lowest level during 2008. There were 4.20 percent people in the labor market who
were unemployed. Range of unemployment is obtained as 6.70.
Exchange rate between two currencies presents relative value of one currency in terms of
other (Mankiw, 2014). For the exchange rate, the mean exchange rate is obtained as 1.35. The
mean exchange rate shows that the average value of Australian dollar against US dollar is 1.35.

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Coming to standard deviation, from the summary statistics, the estimated standard deviation for
the period is 0.24. standard deviation measuring distance of the data point from the mean value is
a good measure to evaluate stability of distribution. The relatively small value of standard
deviation indicates stability of value of Australian dollar against US dollar. The exchange rate
varied between 1.93 percent to 0.97 percent. The high value of exchange rate indicates
depreciation of home currency. The low exchange rate on the other hand indicates a currency
appreciation.
Real interest rate is an inflation adjusted measure of interest rate. It is obtained as
nominal interest rate less the rate of inflation (Borio,2014). The average real interest rate is 5.36.
The real interest rate in Australia ranged between 10.07 to 1.04 percent. Standard deviation of
real interest rate is obtained as 2.48. The relatively higher real interest rate implies relative
stability in the distribution of real interest rate (Hamilton et al., 2016).
The last variable considered is the net export. It represents the net gain from trade and
obtained by subtracting import from export (Mankiw, 2014). The average growth of net growth
of net export is 32.14 percent. The standard deviation is a very low of 3.12. The stability in net
export growth implies a steady share of trade in real GDP. Net export growth of Australia ranged
between 37.07 percent to 25.61 percent.
Pair-Wise graph
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
7.00
8.00
Real GDP VS Inflation rate
Real GDP growth rate Inflation rate
Figure 1: Relation between Real GDP growth and Inflation
(World Bank, 2018)

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1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Real GDP growth and Unemployment Rate
Real GDP growth rate Unemployment rate
Figure 2: Relation between Real GDP growth and Unemployment
(World Bank, 2018)
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
7.00
8.00
Real GDP VS Inflation rate
Real GDP growth rate Inflation rate
Figure 3: Relation between Real GDP growth and Real interest rate
(World Bank, 2018)

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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
Real GDP and Exchnage rate
Real GDP growth rate Exchange rate
Figure 4: Relation between Real GDP growth and Exchange rate
(World Bank, 2018)
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Real GDP growth VS net export growth
Real GDP growth rate Net export
Figure 5: Relation between Real GDP growth and Net export growth
(World Bank, 2018)

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Evaluation of relation between GDP growth and other macro variables
Gross Domestic Product is a macroeconomic indicator for measuring output at aggregate
level. In the method for GDP computation to find out aggregate values of output respective
market price of goods and services needs to be used. Conventionally, two types of market prices
are used to estimate GDP. One is the market price of the year for which GDO is computed and
other is to use market price of a pre-determined base year. The former is termed as nominal GDP
while the latter is termed as real GDP. The main objective to use the fixed base year price is to
obtain the actual values of output which is free from fluctuation in the price level. A high rate of
inflation overstates GDP while deflation understate value of aggregate output. Growth in real
GDP is the percentage change of real GDP between two consecutive years. Growth in real GDP
is considered as a measure of economic growth and prosperity (Johnson, 2017). There are
different factors which contribute to a growth in GDP. GDP growth again influences several
other indicators. Therefore, there exists an interrelation between GDP growth and other
macroeconomic variables like inflation, unemployment, exchange rate, real interest rate and net
export.
Table 2: Correlation analysis
Real GDP
growth rate
Inflation
rate
Unemployme
nt rate
Exchange
rate
Real
Interest rate
Net
export
Real GDP
growth rate 1
Inflation rate -0.020 1
Unemployment
rate -0.126 -0.208 1
Exchange rate 0.197 0.080 0.263 1
Real Interest
rate -0.109 0.046 0.731 -0.077 1
Net export 0.213 0.063 -0.772 -0.124 -0.823 1
The correlation matrix shows relation of real GDO growth with each of the
macroeconomic variables along with representing association among each of the variables with
other.
An inverse association is observed between inflation and GDP growth rate. The
correlation between inflation and GDP growth is estimated to be -0.020. The moderate to low
inflation rate is generally beneficial for economic growth. It encourages productive activities by
raising profitability of firms. Growth in GDP on the other hand is expected to have a positive
influence on price level through income and demand growth (Tung and Thanh, 2015). The
proposed relation between inflation and GDP growth contradicts because active anti-inflationary
measures taken by RBA. A very high inflation rate affects the standard of living by increasing
price of consumption basket. The RBA has set its inflation target to stable rate of 2 percent. The
ant inflationary measures help to achieve a higher growth with stability in the price level.

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The correlation between real GDP growth and unemployment rate is negative. Value of
the correlation estimate is -0.13. Negative correlation implies a negative association between
growth of GDP and that of unemployment. This implies a higher GDP growth leads to a lower
rate of unemployment. The economic rationale for this relation is simple. The fast growth in
GDP implies that rapid expansion of output resulted from increased productive capacity.
Expansion of goods market results in an expansion of factor market. Increase in labor market
reduces the difficulties for finding jobs and hence a lower rate of unemployment (Ball, Jalles and
Loungani, 2015). The same kind of relation between GDP growth rate and unemployment rate id
obtained from figure 2, showing pairwise movement of GDP growth and unemployment rate.
Because of the inverse association the unemployment rate and GDP growth converges with an
expansion of economic growth.
A positive association is observed between exchange rate and real GDP growth rate. The
estimated correlation between the two variable id 0.197. The exchange rate represents price of
Australian dollar against that of US dollar. An increase in the exchange rate has the implication
of raising the value of US dollar. This is because one US dollar now receives a larger amount of
Australian dollar. The relatively lower value pf Australian dollar reduces the effective price of
Australian exportable (Saha and Zhang, 2016). This helps to increase demand for Australian
export in the world market. As export increase, there is an increase in net export which increase
real GDP and hence, economic growth. The effect of exchange rate on net export thus channeled
through net export. Government often control movement of the exchange rate using monetary
policy tool. The policy of raising exchange rate is called currency devaluation. The correlation
analysis can be supported from graph presenting joint movement of GDP growth and exchange
rate. From the graph it is seen the higher exchange rate is associated with a lower GDP growth
vice versa. The higher exchange rate of 1.93 in 2002 is associated with a growth of only 1.93
percent. The lowest exchange rate of 0.97 on the other hand corresponds to a relatively higher
growth rate of 3.63.
The real interest rate, which is price adjusted measure interest rate has a negative
correlation with growth of GDP. The estimated correlation between real interest rate and GDP
growth is obtained as -0.11. Interest rate represents the borrowing cost of capital. A lower
interest rare means lower borrowing cost and hence a higher investment. The increased
investment in the economy helps to stimulate economic growth. Government can influence real
interest rate using monetary policy. In time if expansionary monetary policy, central bank lowers
the bank rate charged on other commercial banks in the nation (Holston, Laubach and Williams,
2017). As the bank rate reduces, commercial banks can reduce interest charged on credit to
stimulate investment., this helps to increase economic growth. Another channel through which
interest rate can influence growth is exchange rate. Given all other things, an increase in the
interest rate implies a higher return from invested fund. This makes foreign investment more
attractive. Following an increase in the demand for home currency the relative price of currency
increase which means a lower exchange ratio. This by reducing export reduces GDP growth. The
obtained graph (figure 3), showing the movement of GDP growth and interest indicates real
interest rate declined sharply from 1990 to 2001. The decrease in interest rate led to a rise in
GDP growth as shown from narrow gap between interest rate and GDP growth rate at low level
of interest.
Finally, the correlation between GDP growth and net export growth is positive. The
correlation is obtained as 0.213. The positive association between net export and GDP growth

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shows the favorable effect of net export on GDP growth (McCombie and Thirlwall, 2016). Net
export, one of the four major components of GDP thus has a positive influence on real GDP and
economic growth. The relation can be validated from time series graph reflecting trend in real
GDP growth and net export. The graph shows an overtime increase in net export helps to
stabilize economic growth.
Prediction about macroeconomic outlook for Australia
From the trend analysis of real GDP growth, it is observed the stable growth trend of
Australia has experienced a slight down in the economic growth rate. However, the slow growth
is expected to overcome soon as the economic recovery has already begun. The weak growth in
consumption demand is likely to be off set from growing business investment. The next phase of
economic expansion will be based on investment in non-mining investment. The economy of
Australia will further experience an increase in growth of its GDP as the sluggish mining
investment is expected to over soon. The monetary policy support will uplift income growth and
domestic consumption (Freebairn, 2015). Export of new resource like LNG over tradition
resources will improve the terms of trade condition ensuring higher growth rate. Growth in
public investment will provide a stimulus to domestic demand and economic growth. The
economic recovery of Australia thus indicates that it will soon experience an economic
expansion.
Conclusion
The report critically discusses the performance trend of Australian over the last few
years. The summary statistics reveal that the economy has growth on an average rate of 3.10
percent. The average growth rate has coupled with an average inflation rate of 2.68 and
unemployment rate of 6.73 percent. The economic growth of Australia has remained relatively
stable. The stability in the price level has been achieved mainly through the policy intervention
by RBA. The average unemployment in Australia though is relatively high but it has decline
significantly with a growth in GDP. Growth in net export has increased making a positive
contribution to GDP. Growth of net export however is subject to variation in the exchange rate.
If RBA takes the policy of currency devaluation, the this helps to increase export and hence,
GDP growth. The real interest rate affects GDP adversely through the channel of investment.
Given the relatively stable nature of Australian economy, the economy is going to enter in a
recession.

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Reference list
Aslani, A., Rezaee, M. and Mortazavi, S.M., 2017. Analysis of the Robustness of Australia
Economy and Energy Supply/Demand Fluctuation. Present Environment and Sustainable
Development, 11(2), pp.35-48.
Azad, A.K., Rasul, M.G., Khan, M.M.K., Omri, A., Bhuiya, M.M.K. and Hazrat, M.A., 2014.
Modelling of renewable energy economy in Australia. Energy Procedia, 61, pp.1902-1906.
Ball, L., Jalles, J.T. and Loungani, P., 2015. Do forecasters believe in Okun’s Law? An
assessment of unemployment and output forecasts. International Journal of Forecasting, 31(1),
pp.176-184.
Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of
Banking & Finance, 45, pp.182-198.
Carvalho, P., 2015. Youth unemployment in Australia. Policy: A Journal of Public Policy and
Ideas, 31(4), p.36.
Freebairn, J., 2015. Mining booms and the exchange rate. Australian Journal of Agricultural and
Resource Economics, 59(4), pp.533-548.
Gillitzer, C. and Simon, J., 2015. Inflation Targeting: A Victim of Its Own
Success?. International Journal of Central Banking, 11(4), pp.259-287.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
Hamilton, J.D., Harris, E.S., Hatzius, J. and West, K.D., 2016. The equilibrium real funds rate:
Past, present, and future. IMF Economic Review, 64(4), pp.660-707.
Holston, K., Laubach, T. and Williams, J.C., 2017. Measuring the natural rate of interest:
International trends and determinants. Journal of International Economics, 108, pp.S59-S75.
Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.
McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments
constraint. Springer.
Saha, S. and Zhang, Z., 2016. Exchange rate pass-through and inflation in Australia, China and
India: A comparative study with disaggregated data. Journal of Economic Research, 21(1), pp.1-
33.
Setterfield, M. ed., 2016. Growth, Employment and Inflation: Essays in Honour of John
Cornwall. Springer.
Tung, L.T. and Thanh, P.T., 2015. Threshold in the relationship between inflation and economic
growth: Empirical evidence in Vietnam. Asian Social Science, 11(10), p.105.
Data Source

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Data.worldbank.org. (2018). Official exchange rate (LCU per US$, period average) | Data.
[online] Available at: <https://data.worldbank.org/indicator/PA.NUS.FCRF?locations=AU>
[Accessed 19 May 2018].