Principle of Economics Course 2022

Running head: PRINCIPLE OF ECONOMICS
Principle of Economics
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1PRINCIPLE OF ECONOMICS
Table of Contents
Introduction......................................................................................................................................2
Comparative analysis of economic growth......................................................................................2
Influence of economic growth on inflation and unemployment rate...............................................4
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
Appendix..........................................................................................................................................9

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Introduction
Primary objective of the research report is to evaluate macroeconomic variables such as
nominal GDP, inflation and unemployment rate for the selected group of countries for a
specified sample period. The selected countries for this purpose are Australia, Canada, New
Zealand and United States. The selected sample period ranged from 2006 to 2018. In order to
make a comparative analysis data are first collected on the selected variables. The paper first
briefly explains the trend in GDP growth rate of the four nations. After explaining the growth
trend the report attempts to evaluate the linkage of economic growth with unemployment and
inflation rate.
Comparative analysis of economic growth
The accounted growth rate of nominal GDP in Australia in the year 2006 was 2.79%.
economic growth increased at a faster rate for the two consecutive period of 2007 and 2008. The
recorded economic growth for the two years were 3.84% and 3.66% respectively. The rapid
economic growth in Australia during this time was due to mining boom that started since 2005. It
was the time when demand for mineral resources such as coal, iron ore and gas increased
significantly causing a considerable expansion of these resources. Demand of Australian
minerals during this time was largely driven by the emerging countries with share of China being
the most important (Battellino, 2020). The rapid growth caused from mining boom however
offset in 2008 by the global financial crisis of 2008. Economic growth rate declined to 1.94
percent in 2009. However, given a relatively strong financial system the impact of global
financial crisis did not last long and the economy recovered soon (Makin, 2019). Australian
economy again began to slow down the since 2013. It was the time when mining boom came to
an end and growth of China’s economy was started to fall. Nominal GDP growth in 2016 was

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2.77%. Growth however recovered since 2017 with growth being 2.37 percent and 2.94 percent
in 2018.
The nominal GDP growth rate in Canada in 2006 was 4.17% percent. Economic growth
in 2007 was increased to 6.87%. GDP growth rate however declined drastically during 2008 and
2009. The respective growth rate being 1.01% and -2.93% during this time. Economic downturn
of Canada during this period was due to hit of global financial crisis. The subprime mortgage
crisis of United States in 2008 had a spillover effect globally. Because of a relatively stable
financial system and a prudent risk management practice the economic recession due to global
financial crisis did not have a long term impact on Canadian economy (Bankofcanada.ca, 2020).
The economy soon recovered and recorded a growth rate of 3.09% in 2010. The nominal GDP
growth rate of Canada since 2012 continued to fall with growth being only 0.69% in 2015. The
underperforming growth rate of Canada during this time was result of several factors (Brown,
Davis & Mayes, 2016). Weak performance of the global economy due to uncertainty in United
States and threat from Euro area contributed to poor performance of private sector and slow
economic growth. Economic growth began to strengthen since 2016. Economic growth in
Canada recovered gaining support from strong energy export and ease monetary policy of bank
of Canada. The recorded economic growth in 2018 was 1.90% percent.
The economy of New Zealand grew at a rate of 2.84% in 2006. The relatively slow
economic growth was the result of series of economic events such as high price of oil, increase in
interest and trade disruption. Economic growth in 2007 however recovered due to increase in
domestic demand and boost in daily export. The economy however entered a recession in 2008
because of Global financial crisis. The economic experienced two consecutive years of negative
economic growth of -1.01% and -0.21% in 2008 and 2009 respectively. Because of policy

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actions taken by government for economic recovery growth recovered and became 1.54 percent
in 2010. Economic growth in 2011 was mostly export driven growth (Treasury.govt.nz, 2020).
The growth rate continued to increase and became 3.72 percent in 2014. In 2015, because of the
drop in global oil price economic growth declined to 3.58%. The impact of decline in global oil
prices was not much long standing for Canada. The economy since then grew at an average rate
of 3%.
Economic growth rate for United State in 2006 was 2.85%. The growth rate was smaller
than previous year because of the policy action of raising interest rate by Federal Reserve.
Economic growth however began to slow since the last quarter of 2007 because of the outbreak
of subprime mortgage crisis (Mehdian, Rezvanian & Stoica, 2019). The economic recorded two
consecutive year of negative economic growth of -0.14% and -2.54% in 2008 and 2009
respectively. Because of fiscal stimulus given on the phase of crisis economic growth recovered.
Economic growth in United State in 2011 again decline to 1.55 percent because of the
Earthquake occurred in Japan. The introduction of sequestration in 2013 contributed to a decline
in GDP growth in 2013. The slow economic growth in 2016 was the result of political instability.
The recorded economic growth of United States in 2018 was 2.93%.
Influence of economic growth on inflation and unemployment rate
GDP growth of a nation is likely to impact unemployment and inflation of the nation. An
increase in economic growth comes with increase in job opportunity which lowers
unemployment rate (Heijdra, 2017). As unemployment rate falls people can spend more boosting
aggregate demand and inflation. This inverse relation between inflation and unemployment is
known as modelled by Phillips curve relation.

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GDP growth rate in Australia in 2006 was 2.79 percent. The associated inflation and
unemployment rate were 3.56 percent and 4.78 percent respectively. With increase in economic
growth in the next year to 3.84 percent, unemployment rate declined to 4.38%. The inflation rate
however was also declined to 2.33 percent because of inflation targeting policy of RBA. Because
of global financial crisis economic growth declined to 1.94 percent in 2009. As economic growth
declined, there was an increase in unemployment rate to 5.56 percent along with a decline in
inflation rate of 1.77 percent (Databank.worldbank.org, 2020). With economic recovery
unemployment rate continued to fall. Since 2012, as economic growth began to decline
unemployment rate started to increase with unemployment rate reached to 6.08 percent in 2014.
As economic growth began to recover unemployment falls as well, inflation however remains
within the RBA’s targeted limit of 2-3%.
In Canada, economic growth rate was 4.17 percent in 2006. Associated inflation and
unemployment rate were 2.00 percent and 6.32 percent respectively. With increase in economic
growth to 6.87 percent in 2007, unemployment rate declined to 6.04%. The period of 2008 and
2009 was known as a period of economic recession. During this time economic growth started to
decline. The negative economic growth rate of 2009 was associated with highest unemployment
rate of 8.34% and an inflation rate of mere 0.30 percent. As economy began to recover
unemployment rate continued to fall (Lombardi & Siklos, 2020). Rate of unemployment though
moved in line with economic growth inflation rate however remain mostly around 2 percent as
controlled by the inflation targeting policy of Bank of Canada.
Unemployment rate in New Zealand is relatively low when compared with
unemployment rate in Australia and Canada. The economic growth rate of 2.84 percent in 2006
was associated with an unemployment rate of 3.86 percent and that of the inflation rate of 3.37

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percent. The increased economic growth in 2007 led to a fall in unemployment rate to 3.66
percent. Because of global financial crisis the economic growth was negative during 2008 and
2009 causing unemployment rate to increase. After that, as economy began to recover economic
growth started to increase and unemployment rate falls. Inflation control being one of the top
priorities of government of New Zealand inflation, despite fluctuation in economic growth and
unemployment rate inflation rate remained within the targeted limit (Rbnz.govt.nz, 2020).
Like three other nations unemployment rate in United States moves in opposite direction
of economic growth. Because of global financial crisis, the economic experienced a negative
growth of -0.14 percent and -2.54 percent in 2008 and 2009 respectively. Because of economic
contraction unemployment rate increased significantly and became 9.63 percent by the end of
2010. During the period of economic crisis inflation declined to -0.36 percent. Both price level
and unemployment continued to recover with recovery of economic growth (Zwiers et al., 2016).
Unemployment though continued to decrease with increase in economic growth inflation rate
however varies within the targeted range as guided by Fed’s monetary policy.
Conclusion
Comparison of trend in macroeconomic variables of the four selected nations reveal that
average growth rate of all the four countries was around 2 to 3 percent. The average growth of
Australia in slightly higher than rest of the three countries. The global financial crisis that
occurred in United States in 2008 affected the three other nations as well. However, a relatively
strong financial system and government policy support helped Australia, Canada and New
Zealand to recover the crisis soon. In all the four countries, unemployment is likely to decline
with an expansion of economic growth. The inflation targeting policy in the four nations help
these countries to keep average inflation rate between 2 to 3 percent.

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References
Bankofcanada.ca (2020) The Canadian Economy: A Progress Report. Retrieved 18 April 2020,
from https://www.bankofcanada.ca/2016/06/canadian-economy-progress-report/
Battellino, R. (2020). Mining Booms and the Australian Economy. Retrieved 18 April 2020,
from https://www.rba.gov.au/speeches/2010/sp-dg-230210.html
Brown, C. A., Davis, K. T., & Mayes, D. G. (2016). Regulatory change in Australia and New
Zealand following the global financial crisis. In The First Great Financial Crisis of the
21st Century: A Retrospective (pp. 219-248).
Databank.worldbank.org (2020) World Development Indicators | DataBank. Retrieved 18 April
2020, from https://databank.worldbank.org/reports.aspx?source=world-development-
indicators
Heijdra, B. J. (2017). Foundations of modern macroeconomics. Oxford university press.
Lombardi, D., & Siklos, P. (2016). The Bank of Canada and the global financial crisis: quietly
influential among central banks. East Asia-Arctic Relations: Boundary, Security and
International Politics, 119.
Makin, A. J. (2019). Lessons for macroeconomic policy from the global financial
crisis. Economic Analysis and Policy, 64, 13-25.

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Mehdian, S., Rezvanian, R., & Stoica, O. (2019). The Effect of the 2008 Global Financial Crisis
on the Efficiency of Large US Commercial Banks. Review of Economic and Business
Studies, 12(2), 11-27.
Rbnz.govt.nz (2020) Inflation Targeting in New Zealand: an experience in evolution - Reserve
Bank of New Zealand. Retrieved 18 April 2020, from https://www.rbnz.govt.nz/research-
and-publications/speeches/2018/speech2018-04-12
Treasury.govt.nz. (2020). Economic and Financial Overview. Retrieved 18 April 2020, from
https://treasury.govt.nz/sites/default/files/2009-07/nzefo-08.pdf
Uribe, M., & Schmitt-Grohe, S. (2017). Open economy macroeconomics. Princeton University
Press.
Zwiers, M., Bolt, G., Van Ham, M., & Van Kempen, R. (2016). The global financial crisis and
neighborhood decline. Urban Geography, 37(5), 664-684.

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Appendix

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