Australian Economic Stability

This assignment analyzes the concept of economic equilibrium, exploring both microeconomic and macroeconomic stability within the context of the Australian economy. It delves into recent economic trends, including GDP growth and inflation, highlighting the period following the 2008-2009 recession. The role of government intervention in stabilizing the economy through fiscal and monetary policies is also discussed, emphasizing Australia's ability to achieve a stable economic environment.

Running head: STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
STABLE EQUILIRIBIUM IN THE AUSTRALIAN ECONOMY
Name of the Student
Name of the University
Authors Note

1STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
Table of Contents
Introduction................................................................................................................................2
Stability in the economy.............................................................................................................2
Reason behind stable equilibrium in Australian economy after recession................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

2STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
Introduction
The purpose of this report is to examine the stable equilibrium in the economy.
Equilibrium is referred to as stable in the economy if any external disturbances creating
unstable equilibrium automatically restore equilibrium. Stable economic equilibrium can be
assessed by either microeconomic stability or macroeconomic stability. Stable equilibrium
can be defined in terms of free market equilibrium as microeconomic stability. Free market
equilibrium is described as the meeting point between the market demand as well as market
supply forces. Implication of stability in the Australian economy is illustrated in terms of
macroeconomic indicators including GDP and its inflation level. Moreover, the role of
Australian government in stabilizing the economy is also conferred in this study.
Stability in the economy
Economic theory relating to stable equilibrium of the economy
According to classical economic theory, a nation will attain equilibrium at its full capacity as
well as employment. Aggregate demand would amend to GDP that has been assisted by
supple wages as well as price. On the contrary, Keynesian economic theory states that both
the wages as well as price do not have flexibility until the economy has full employment. At
this point, rise in demand will result increase the price of goods. In this model, the
components of planned aggregate expenditures include- consumption, government purchases,
investment and net exports. Thus aggregate demand (AD) is obtained by adding all these
components. AD=C+I+G+NX. This theory also defines that equilibrium in the economy is
achieved when present production value is equivalent to planned aggregate expenditures.

3STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
AE=GDP
AE0
AE1
Q0
P0
QE
Figure 1: Planned aggregate expenditure
Source: (As created by author)
Need for government intervention
The objectives for intervention of government in the economy are :
 Maximizing social welfare through applying remediation of market failure
 For acquiring macro-economic objectives that include controlling inflation and
combating bad economic condition
 Promoting socio-economic objectives such as attaining income distribution and
providing basic service to the citizens of respective economy
Macroeconomic stability
Real GDP
Planned aggregate expenditure

4STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
AS
AD
Price
Real GDP (Y)
P1
P2
P3
Y1
E
Stability in the Australia economy can be analysed with the help of economic
indicators that includes GDP, inflation level, changes in unemployment level, currency rate
fluctuations etc. Over the years, the Australian economy has been stable as indicated by
stable movement of inflation, unemployment and GDP (Martorano, 2015). Australian
government plays a vital role in managing the economy by implementing tools for stabilizing
the economy. Business cycle phases also influences the economic stability and growth. In
addition, stability in Australia is analysed by aggregate demand- aggregate supply (AD-AS)
framework.
Figure 2: Macroeconomic stability
Source: (As created by author)
GDP of Australia
GDP is widely reported measurement of economic performance of a particular
nation. The GDP level of Australia is indicated by the intersection point between AD and AS

5STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
curve. This refers to macroeconomic equilibrium and hence difference in AD and AS brings
about reforms in inventories of firms and helps them in adjusting their future plans.
It is estimated by adding investment, government purchases, consumption and net
exports. However, change in this component leads to variation in GDP of the country.
Nominal GDP refers to the value of products with respect to price level (Inflation level). It
has been seen from the study that Australian GDP records stable movement over the years
with no huge variation in it (Cournède, et al., 2015).
Figure 3 : Australia’s GDP
Source: (tradingeconomics.com, 2017)
Level of inflation in Australia
Inflation level relates to rise in average level of price of goods within the economy.
CPI (Consumer price index) refers to an index that helps in measuring inflation level in
Australia. Though there has been fluctuations in inflation level in Australia, it remained
within the target level 2-3%.

6STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
Figure 4 :Australia’s inflation
Source: (tradingeconomics.com, 2017)
Reason behind stable equilibrium in Australian economy after recession
After the recession phase (2008-2009), stable economic equilibrium has been
reflected in Australia. Australian government plays a crucial role in stabilizing the economy
by using various stabilizing instruments. These instruments include Automatic stabilizers and
discretionary stabilizers (Corsetti et al., 2013). Discretionary stabilizers refer to fiscal policy
that uses variation in government expenditure or tax for altering aggregate demand. On the
other hand, automatic stabilizers refer to changes in tax revenues and transfer payments
which is directly related to the GDP of the economy. In order to combat recession, the
Australian government increases their spending level which in turn increases the aggregate
demand in the economy. They also cut the tax rate for combating recessionary phase and this
increases real GDP. Australian government implemented contractionary fiscal policy for
reducing aggregate demand and combat inflation. Even the budget prepared by the Australian
government is designed based on the economic condition. However, the outlays of the federal
government refer to considerable percentage change in GDP. This budget also announces the

7STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
fiscal stance which reflects whether they are trying to contract or expand activities of the
economy.
Conclusion
The above report assess the idea of stable economic equilibrium. In this context,
both microeconomic as well as macroeconomic stability has been discussed. In addition, this
report also highlights that Australian economy has been stable over the past few years as
signified by GDP and inflation rate. Though the economy stumbled during recessionary
phase, the intervention of Australian government helped the economy to combat with the bad
economic phase and recover from financial crisis period. They adopted contractionary fiscal
policy and expansionary monetary policy in order to stabilize the economy. Thus, stability in
the economy highlights good economic health of the nation.

8STABLE EQUILIBRIUM IN THE AUSTRALIAN ECONOMY
References
Australia GDP | 1960-2017 | Data | Chart | Calendar | Forecast | News.
(2017). Tradingeconomics.com. Retrieved 13 September 2017, from
https://tradingeconomics.com/australia/gdp
Corsetti, G., Kuester, K., Meier, A., & Müller, G. J. (2013). Sovereign risk, fiscal policy, and
macroeconomic stability. The Economic Journal, 123(566).
Cournède, B., Garda, P., & Ziemann, V. (2015). Effects of Economic Policies on
Microeconomic Stability.
Garda, P., & Ziemann, V. (2014). Economic Policies and Microeconomic Stability.
Hague, D. (Ed.). (2016). Stability and Progress in the World Economy. Springer.
Martorano, B. (2015). Lessons from the recent economic crisis: the Australian household
stimulus package. International Review of Applied Economics, 29(3), 309-327..
McLeay, M., Radia, A., & Thomas, R. (2014). Money creation in the modern economy.
Robinson, T., Nguyen, V. H., & Wang, J. (2017). The Australian Economy in 2016–17:
Looking Beyond the Apartment Construction Boom. Australian Economic
Review, 50(1), 5-20.