Quantitative Methods for Economic Analysis

This article analyzes Australia's economic performance in the third and fourth quarter of 2018, where the economy declined by 0.2 percent. It explores the relationship between population growth and per capita GDP and suggests measures to improve economic growth.

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Quantitative Methods for Economic Analysis
By [Name]
Course
Instructor’s Name
Institutional Affiliation
The City and State
The Date

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Introduction
The article selected for this analysis paper is "Australia's Economy just entered Recession on a
per capita basis," by Letts Stephen. It was published on the 6th March 2019 in ABC News. The
article is about the state of Australia's economic performance in the third and fourth quarter of
2018, where the economy declined by 0.2 percent. The Reserve Bank of Australia had projected
the economy to grow by 2.8 percent, but because of how the economy performed in the 3rd and
4th, the overall annual performance was 2.3 below that which was forecasted (Stephen, 2019).
The above can be seen in the graph below.
Figure 1: Agraph showing GDP per capita
Source: (Stephen, 2019)

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The slow economic growth was due to the reduced per- capita income reflected in the low
household expenditure and decreased investment by the dwelling. Consumers are spending more
than they are earned and that their expenses are growing more than their incomes. Per- capita
income is calculated by getting the quotient of the national income and the country's population.
And the above can be illustrated in the graph below.
Figure 2: A graph showing household incomes vs. the savings
Source: (Stephen, 2019)
The above value shows or measures the living standards of the people of a given country. On the
other hand, GDP is the measure of the final total value of goods and services that have been
produced within the borders of a country in a specified time, usually quarterly, yearly. GDP
figures are usually used to measure the economic activity of a country, while GDP per- capita is
GDP divided by the country's population. It measures a country's standards of living (Williams et

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al., 2016). Since to get the GDP per- capita it is obtained after distributing the country's GDP for
everyone in the country, it means that the higher the population figures, the less the value of the
GDP and the reverse is true (Hayes, 2016). Therefore a nation whose population is proliferating
may have lower GDP per- capita if the growth in GDP does match the increase in population.
The per- capita GDP of a country may be negative, but when there is consistent growth in the
economy just because there is faster growth in the population.
Outline of relevant theory
Keynesian Theory of Economic growth.
According to Amadeo (2019), for any economy to register growth, there should be increased
demand. The Keynesian theory of economic growth state that for an economy to grow, the
government should use the expansionary fiscal policy. The government should spend more on
infrastructure, education and also give benefits to the unemployed. This would, in turn, increase
the disposable income for the dwelling to spend and even invest hence economic growth. In
theory, it is stated that for any $1 the government spends, there is one more $1 that is added on
for economic growth. The government expenditure has a multiplier effect on economic
development and thus to fasten the country's development, the government should spend more.
Analysis
The main idea presented in the article is associated with economic growth in the fourth quarter,
which did not match the rate of population growth. The above resulted in negative economic
growth. It is believed that in highly developed countries, economic growth has a likelihood to be
relatively slow in the future partly because of the predicted slow population growth. ( Wesley
and Peterson 2017). Other economists contend that population growth will continue to be a

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problem in economic growth because the growing population puts pressure on the finite
resources of the earth, and this will hinder economic growth in the long term. If the two variables
population growth and per capita GDP are independent, then the increase in population rate
would translate into high rates of economic growth, but the economic well-being of the dwelling
is only reflected through the growth in the per capita GDP (Sorek, and Diwakar, 2016).
However, population growth is known to affect the per capita of a country because of the
pressure it exerts on the finite resources. So if the per capita growth is affected by the growth in
population, then it would mean a higher rate of population growth would lead to either increased
or reduced overall economic growth. This would depend on how the population growth has
affected the per capita GDP. The Malthusian theory of population growth explains that the
population exhibits an exponential growth while the increase in the food supply is arithmetic
meaning the population growth surpasses the growth in food supply (Agarwal, 2019). Thomas
Malthus' theory shows that population growth impacts the well-being of people negatively. This
forces the households to spend more on food and reduces expenditure elsewhere and also reduce
investments. The reduced investment further worsens the income levels of the dwelling.
Conclusion
To save the situation of the economic recession based on the per capita, the government should
increase its expenditure on infrastructure and health care services. It should focus on reducing
unemployment so that the dwelling can realize increased income growth. The low household
income which is reflected in the lower household expenditure is due to the culture by the
dwelling to spend more than they are earning. The government should emphasize population
control measures to check the population growth rate. Population growth through family
planning methods will enable the population growth rate to pace with the growth in the economy.

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Immigrants from other countries can also increase the population of the country and increase the
adverse effects of population on the economy (Silva, Nagarajan, and Teixeira, 2016). The
immigrants suppress the incomes of the unskilled labor in the developed countries, although they
may be beneficial in the contribution of the GDP. But the unskilled labor's reduced incomes
affect their capacities to spend. Therefore strict immigration laws should put in place.
The Reserve Bank should encourage investments through reduced interest rates so that there is
the availability of funds for the dwelling to borrow and invest. The decreasing rates lessen the
debt burden on the dwelling. The government should also put in place measure to control income
inequalities because when the resources are concentrated in a few individuals, then per capita is
not a good indicator of economic health. Therefore, further research should be focused on
technological development and population growth. Technological innovations in the field of food
science and agriculture have enhanced sector productivity and support the increased demand for
food.

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References
Amadeo, K. 2019. Keynesian Economics Theory. The balance. [Online]. Retrieved from:
https://www.thebalance.com/keynesian-economics-theory-definition-4159776 [Accessed:
28th May 2019]
Agarwal, P., 2019. Malthusian Theory of Population. Development Economics. [Online].
Retrieved from: https://www.intelligenteconomist.com/malthusian-theory/ [Accessed:
Accessed: 28th May 2019]
Chappelow, J., 2019. Per Capita GDP. Investopedia. [Online]. Retrieved from:
https://www.investopedia.com/terms/p/per-capita-gdp.asp [Accessed: 28th May 2019]
Hayes, A., 2016. Factors That Point to Global Recession in 2016. Investopedia. [Online];
Accessed from https://www.investopedia.com/articles/investing/071515/6-factors-point-
global-recession-2016.asp. [Accessed: 28th May 2019]
Wesley, E., and Peterson. F. 2017. The Role of Population in Economic Growth. Sage journal.
[Online]. Retrieved from:
https://journals.sagepub.com/doi/full/10.1177/2158244017736094
Silva, T., S., Nagarajan, R., N., and Teixeira, C., A., 2016. The Impact of Ageing and the Speed
of Ageing on the Economic Growth of Least Developed, Emerging and Developed
Countries, 1990–2013. Wiley Online Library: [Online]. Retrieved from:
https://onlinelibrary.wiley.com/doi/abs/10.1111/rode.12294

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Sorek, G., and Diwakar, B., 2016. Human-Capital Spillover, Population, and Economic Growth.
Auburn University. [Online]. Retrieved from:
https://s3.amazonaws.com/academia.edu.documents/44201839/2016-02.pdf [Accessed:
28th May 2019]
Williams, C., Gilbert, J. B., Zeltner, T., Watkins, J., Atun, R., and Maruthappu, M. 2016. Effects
of economic crises on population health outcomes in Latin America, 1981–2010, an
ecological study. [Online] BMJ Open. 2016; 6(1): e007546: 10.1136/bmjopen-2014-
007546