Principles of Economics

Principles of Economics
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Principles of Economics
Question 1
The given economist would be considered as a Keynesian economist. This is because
Keynesian economists tend to be averse to the idea of austerity considering the adverse effect
that it has on the economic growth. As a result, austerity according to Keynesian economists
should only be carried out in periods of boom. On the other hand, neo-classical economists
tend to view austerity as a measure of stimulating economic growth (Barro, 2017). It is
evident from the statement that the author does not seem to view austerity in positive light
and considers it only a hog wash.
Question 2
Australia was able to prevent recession during the global financial crisis on account of large
fiscal stimulus package implemented by the Rudd government at the time. This stimulus
package needs to be reviewed in the background of four main components of GDP namely
government spending, consumer spending, private investment along with net exports. The
two components that played a pivotal role in avoiding recession were government spending
and consumer spending. Through the stimulus package, the government increased the
spending providing a boost to the economic activity. Also, tax rebates were given which
resulted in higher disposable income and hence boosted consumer spending (Mankiw, 2015).
Question 3
One of the key components of GDP is net exports. With regards to Australian economy,
about one-third of the exports comprise of iron ore, coal and other mineral commodities.
During the global financial crisis, there was a decline in the economic activity globally
leading to lower demand of various mining related commodities. Owing to drop in demand,
the prices of these commodities plummeted. The net result of this price drop along with lower
quantity offtake would have been that Australian exports would witness a significant decline
(Krugman, 2016). Owing to the significant decline in exports and no corresponding drop in
imports, there would be a decrease in the net exports leading to decline in GDP growth.
Question 4
The graph in question highlights the real GDP growth rate in Australia and New Zealand
from 1990 to 2015. It is evident that most of the years the growth rate of Australia tends to be
higher than New Zealand. Also, the variation in performance of NZ GDP growth is