Responses to articles - Article 1

This document provides responses to articles related to Australian GDP per capita growth rate, sectors that performed well and those that did not, the difference between Real GDP and Real GDP per capita, the rate of population growth, and limitations of GDP as a measure of economic welfare.

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BUS102 Introduction to Economics – Semester 2 2019
Assessment task 2 – Responses to articles - Article 1
DUE via Safe Assign 5pm Friday 16th August
NAME:
ID NO:
Tutor’s name:
“Australia’s economy just entered recession on a per capita basis” By Stephen Letts (from
ABC news of 6th March 2019) is available at:
https://www.abc.net.au/news/2019-03-06/gdp-q4-2018/10874592
Access the article in the URL above and answer the questions in the spaces below. Use full
sentences and show all necessary working but do not use more space than is given. Other
references are not necessary (unless specified in the question) but, if you do use any (for
example, online economics glossaries) please list at least the URL of your source. Please read the
marking rubric provided in the separate file before answering the questions. Total mark for this
assignment is 15.
(1) Considering that Australian GDP per capita amounted to A$73,800, compare the effect of the
recorded growth rate of 2.3 per cent with the growth rate expected by the Reserve Bank,
according to the article, if they were sustained over a period of 15 years. (Show your working)
The RBA expected a growth of 2.8% while Australia could actually achieve 2.3% growth
rate in the last year. With the recorded growth rate of 2.3%, the per capita GDP of Australia was
A$73,800 in 2018 according to the report in ABC News. Thus, it can be inferred that the
predicted growth rate by RBA is higher than the actual growth rate and if this is to be sustained
in the next 15 years, then this would lead to a higher growth in GDP per capita in the next 15
years.
Thus, the GDP per capita with 2.3% and 2.8% growth rate at the end of 15 years would be:
Per capita GDP at the end of 15 years = per capita GDP at starting date * (1 + growth rate of GDP
per capita) ^15

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Per capita GDP (A$) 73800 At the end of 15 years
Actual growth (%) 2.3 103798.45
Forecasted growth (%) 2.8 111674.26
Thus, it can be said that a higher growth rate indicates better health of almost all the major
economic sectors, and that results in increase in the wages of people.
(2) According to the article and considering the national income accounting identity, carefully
describe which sectors performed well and which ones did not.
According to the report, the economic growth in Australia slowed down due to a fall in
the household spending and weak growth of the private sector. On the other hand, the
government spending increased which helped to cover the weak performance of the private
sector. It is seen that the public sector expenditure grew considerably in the infrastructure,
public health care industry, aged care and disability services and this expenditure by the
government into the economy is the major driver of growth. However, it is also observed that
the household spending decreased, followed by a decrease in vehicle sales, household goods,
and utilities and that is expected to be related to the credit tightening policy by the government.
(3) According to the article Real GDP grew at 0.2 per cent however Real GDP per capita fell by
0.2 per cent. Explain why they differ and, based on this data, calculate the rate of population
growth. (Show your working)
The rate of population growth is calculated using the following formula:
Growth of per capita GDP = Growth of real GDP - Population growth
Or, Population growth = Growth of real GDP - Growth of per capita GDP
Thus, as per the data on Real GDP and Real GDP per capita in the given article,
Real GDP growth Growth of per capita GDP Population growth
0.20% -0.20% 0.40%

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(4) According to the article “Treasurer says per capita GDP is not a good indicator of economy
health”. Outline at least two limitations of GDP a measure of economic welfare.
GDP is not a measure of economic welfare due to many reasons. However, two major reasons
are as followed:
Economic welfare includes many other factors than only the production level that
happens within the geographical boundary of a nation. As per the definition of GDP, it accounts
for only the goods and services produced within the country at a given period of time, while
economic welfare of a nation takes into consideration many development indicators, such as,
level of human development, standard of living, life expectancy, income distribution, purchasing
power of people, employment, inflation etc. (Jones and Klenow 2016). Hence, GDP cannot
measure economic welfare.
Secondly, GDP does not include non-market transactions, such as, the black market
transactions, payment for domestic work or voluntary work, but these aspects also make a
significant contribution in the economic welfare of a nation by influencing standard of living of
people (Ivković 2016).
References
Ivković, A.F., 2016. Limitations of the GDP as a measure of progress and well-being. Ekonomski
vjesnik/Econviews-Review of Contemporary Business, Entrepreneurship and Economic
Issues, 29(1), pp.257-272.
Jones, C.I. and Klenow, P.J., 2016. Beyond GDP? Welfare across countries and time. American
Economic Review, 106(9), pp.2426-57.

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