Principles of Economics USA Case Study 2022

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PRINCIPLES OF ECONOMICS

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Contents
Introduction................................................................................................................................3
Tabulations.................................................................................................................................3
Impact on the economic growth for each of the countries.........................................................5
Comparison............................................................................................................................of 5
Impact of economic growth on inflation and unemployment....................................................7
Conclusion..................................................................................................................................8
Reference....................................................................................................................................9

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Introduction
The economic growth rate is among the major objectives of any government around the
world. The positive growth rate of the economy is not only a sign of running and a stable
economy, but it also shows the expected influence on the other major macroeconomic
variables such as inflation and the unemployment rate. The objective of the paper is to select
a group of countries and examine the nominal GDP growth rate over the period of 2006 to
2018. Subsequently, the paper will also present an analysis regarding the influence of the
nominal GDP growth rate on the inflation rate and the unemployment rate of the selected
countries. The countries that have been selected are Australia, Canada, New Zealand, and the
USA.
a)
Tabulations
Australia
Year Nominal GDP Inflation rate Unemployment rate Nominal growth rate
2006 1.17131E+12 3.555287737 4.782000065
2007 1.33937E+12 2.327611289 4.376999855 14.34820982
2008 1.65477E+12 4.35029855 4.234000206 23.54893677
2009 1.45665E+12 1.771117166 5.56099987 -11.97256891
2010 1.79944E+12 2.918340027 5.210999966 23.53223351
2011 2.19274E+12 3.303850156 5.080999851 21.85699619
2012 2.42746E+12 1.762780156 5.223999977 10.70432016
2013 2.47461E+12 2.449888641 5.662000179 1.942414933
2014 2.30395E+12 2.487922705 6.077000141 -6.896449252
2015 2.12216E+12 1.508366722 6.053999901 -7.890358183
2016 1.89789E+12 1.276990945 5.710000038 -10.56799782
2017 2.08831E+12 1.948647409 5.59100008 10.03342555
2018 2.25123E+12 1.911400944 5.297999859 7.801353442
Canada:

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Year Nominal GDP Inflation rate Unemployment rate Nominal growth rate
2006 1.85474E+12 2.002025395 6.320000172
2007 2.06562E+12 2.138383993 6.035999775 11.36994563
2008 2.18428E+12 2.370270674 6.137000084 5.744391063
2009 1.93333E+12 0.299466803 8.343999863 -11.48890442
2010 2.2751E+12 1.776871541 8.055999756 17.67780887
2011 2.52269E+12 2.912135089 7.511000156 10.88275137
2012 2.57179E+12 1.515678231 7.291999817 1.946522261
2013 2.59725E+12 0.938291898 7.073999882 0.989696493
2014 2.54009E+12 1.906635907 6.914000034 -2.200754201
2015 2.18959E+12 1.125241361 6.906000137 -13.79866448
2016 2.15265E+12 1.428759547 6.999000072 -1.686805162
2017 2.32208E+12 1.596884129 6.340000153 7.8706528
2018 2.41581E+12 2.268225672 5.830999851 4.036420388
New Zealand
Year Nominal GDP Inflation rate Unemployment rate Nominal growth rate
2006 1.86387E+11 3.365401962 3.857000113
2007 2.29318E+11 2.376143103 3.661000013 23.03333773
2008 2.22578E+11 3.958949373 4.166999817 -2.938989171
2009 2.02635E+11 2.115651106 6.120999813 -8.959878516
2010 2.44795E+11 2.30202386 6.55700016 20.80558448
2011 2.81332E+11 4.027906674 6.491000175 14.9253618
2012 2.94243E+11 1.059913184 6.931000233 4.589579878
2013 3.1861E+11 1.134422664 6.264999866 8.281049905
2014 3.35393E+11 1.227507506 5.751999855 5.267525918
2015 2.95938E+11 0.292704628 5.364999771 -11.76389012
2016 3.13716E+11 0.646240284 5.099999905 6.007576282
2017 3.38327E+11 1.850787675 4.702000141 7.844810104
2018 3.42223E+11 1.598297038 4.297999859 1.15163355
USA

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Year Nominal GDP Inflation rate Unemployment rate Nominal growth rate
2006 1.38146E+13 3.225944101 4.623000145
2007 1.44519E+13 2.852672482 4.622000217 4.612849518
2008 1.47128E+13 3.839100297 5.78399992 1.805895285
2009 1.44489E+13 -0.35554627 9.25399971 -1.793746046
2010 1.49921E+13 1.640043442 9.633000374 3.758891408
2011 1.55426E+13 3.156841569 8.949000359 3.672134744
2012 1.6197E+13 2.069337265 8.069000244 4.210537752
2013 1.67848E+13 1.464832656 7.375 3.62932379
2014 1.75217E+13 1.622222977 6.168000221 4.390252993
2015 1.82193E+13 0.118627136 5.28000021 3.981058901
2016 1.87072E+13 1.261583206 4.868999958 2.67787849
2017 1.94854E+13 2.130110004 4.355000019 4.159928303
2018 2.05443E+13 2.442583297 3.895999908 5.434581471
b)
Impact on the economic growth for each of the countries
The economic growth rate has a different pattern for the different countries chosen for the
study. However, the nominal economic growth rate has shown an influence from the side of
the business cycle in all the cases.
Comparison
Except for Australia, all the other countries chosen for the study were experiencing a fall in
the nominal GDP even before the financial crisis. The reduction in the nominal GDP growth
rate increased after the financial crisis in the year 2007 as can be seen in the curves of the
USA, New Zeeland and Canada (Ouardighi & Munier, 2019). In addition to that, the recovery
of each of the economies in the question has also been the same. All the country has bounced
back after the end of the year 2009 with stability in the product prices and the aggregate
demand for the goods and the service. However, again in the year 2010, due to the failure in
recovery for some of the world powers, the aggregate demand led to a reduction in the GDP
of most countries of the world (Munier, 2019). Australia did not immediately face the
downward trend in the nominal GDP growth rate due to the boost it received around the same
time from the mining sector of the economy. Canada showed a continuous fall in the
economic growth rate until the year 2012 due to the lack of aggregate demand in the
economy. New Zealand also faced a similar downfall in the nominal GDP growth rate,
however, the intensity was lower compared to that of Canada. Both Canada and New Zealand

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also faced a reduction in the savings rate. Ermolina, Manukyan & Podbornova (2019) stated
that a savings rate helps the economy to increase the investment as well. Therefore the lack of
savings rate led to the continuous fall in the economic growth rate of the countries. The
scenario during these years has been very different for the economy of the USA. After the
full recovery from the financial crisis of the year 2007, the economy never experienced a fall
in the aggregate demand for the goods and the services (Shamshir et al. 2019). The domestic
consumption of the country increased more than the previous level and hence that led to a
strong nominal GDP growth rate. Although the economy of the USA did not experience any
drastic fall in the nominal GDP growth rate, some influence of the business cycle temporarily
reduced the nominal growth rate.
The year 2014-15 was the time that most of the countries of the world had bounced back hard
from the financial crisis of 2007 and the nominal growth rate started increasing again for
world powers like Australia, Canada, and New Zeeland. While the new Zeeland showed an
immediate increase in the nominal GDP growth rate since the end of 2015, Australia failed to
show any positive recovery due to tight monetary policies and government interventions.
Australia at that time was highly driven by the gains in the mining sector, and despite the
reduction in domestic consumption, the economy thrived by exporting mining materials in
the markets of Asia pacific (Rehman et al. 2019). Since the beginning of 2016, the economy
of Australia started growing again as the government had increased the rate of interest to
attract more and more foreign investors into the economy of Australia. The nominal growth
rate trend for Canada and New Zealand has been almost similar to each other due to some
type of economic policies undertaken by the respective government. Despite the fall in the
economic growth rate, both these companies followed tight monetary policies to stabilize the
prices of the goods and the services in the market. Both these countries are yet to reach their
previous levels of economic growth rate (Tenzin, 2019). The nominal GDP growth rate fared
wonderfully for the economy of the USA after 2016 as the USA government promoted the
production level within the country. The country currently has a strong demand for goods and
services produced domestically. While on the other hand, New Zealand saw a decline in the
growth rate again since the year 2017, the same has been the case for Canada and Australia as
well. The reason for the decline in the growth rate of these countries is the decline in the
aggregate demand for the goods and the services. In addition to that, the savings rate is also
failing and hence the investment is low (Gbosi, 2019). The housing price in Australia had
increased manifold in the last few quarters which has impacted the sale of the housing as

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well. Therefore it has failed to provide the stimulus for further growth in the economy of
Australia. The nominal economic growth is approaching zero for New Zealand as well as the
economy is experiencing a rise in the unemployment rate. Canada, as of 2018, had been
doing better than New Zeeland due to the huge middle-class customer base for strong
domestic demand for goods and services.
Impact of economic growth on inflation and unemployment
The economic growth rate directly impacts the inflation rate and the unemployment of the
economy. However, due to the intervention of the government in some countries the inflation
and unemployment have been controlled separately. The inflation in the case of Australia has
reduced similarly to the decline in the nominal GDP. Lilia, Manukyan & Podbornova (2019)
stated that, as the GDP reduces, the income of the customer of the market also reduces and
hence the demand for the goods and the services reduces. This reflects in the overall prices of
goods and services and the price level goes down. Every time the nominal growth rate of
Australia has reduced it has been followed by the reduction in the inflation rate of the country
(Jednak & Kragulj, 2019). Due to a lack of activity, the unemployment rate has increased
over the years as the growth rate has declined. However, unemployment has been taken care
of by the government and with the stimulus, the loss of jobs has been reduced. The case for
Canada has been different from Australia as inflation has sometimes increased with a
reduction in the GDP growth rate (Lewis et al. 2019). This is due to the tight monetary
policies that have been discussed above. The tight monetary policies have led to an increase
in the price of goods and services despite a reduction in the aggregate demand for goods and
services. However, the unemployment rate has reduced as the government had dedicated
economic policies in place for the country.
New Zealand followed a low intervention from the government side and hence the inflation
and the unemployment rate have followed a standard trend. The inflation rate has reduced
over the years as the nominal growth rate of the New Zealand economy has reduced. The lack
of domestic demand for goods and services is one of the main reasons for the lack of demand
for goods and services along with the reduction in disposable income. The unemployment
rate increased during the economic recession and reduced significantly with the recovery
(Hongo, Li & Ssali, 2019). The unemployment rate has been a major concern for the country
in the last few years and hence even with the low economic growth rate the country has
managed to have a downward trend for the unemployment rate. Similar to New Zealand, the

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government had dedicated policies for the reduction in the unemployment rate since the
recovery of the country from the financial crisis. Apart from that, the economic decline was a
rare event in the USA after the year 2009 and hence the country was able to reduce
unemployment over time. The laissez faire economy or free-market economy is also evident
in the case of the USA, as inflation has directly followed the economic growth rate in these
years (Abu, 2019). With the reduction of the economic growth rate in the time of crisis, the
domestic demand was so low that the price level plummeted.
Conclusion
Therefore, the economic growth rate is a major determinant of the other macroeconomic
variable such as the inflation rate and the unemployment rate. The study carried out with four
economies shows that the nominal economic growth rate and the recovery of the economies
have differed between the economies. In addition to that, their impacts on the unemployment
rate and the inflation rate have also been different from the standard changes due to the
intervention of the government. Given the result, the economies need to follow a periodic
economic stimulus to keep the economic growth rate high.

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Reference
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