BUS502 Principles of Economics: Analysis of GDP, Growth & Policy

This economics assignment delves into the intricacies of GDP and economic growth, focusing on the disparities between real GDP and real GDP per capita in Sydney, Australia. It examines the diverging growth rates of regional NSW and Victoria, projecting the potential long-term economic polarization resulting from these trends. Furthermore, the assignment critically assesses the limitations of GDP as a measure of social welfare, advocating for alternative indicators like the Human Development Index and the Social Progress Index. Finally, it explores the role of monetary policy, specifically the Reserve Bank of Australia's cash rate, in managing economic growth and preventing economic imbalances, particularly concerning Sydney's dominant financial role. This document is available on Desklib, a platform offering a wealth of study resources for students.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the student:
Name of the University:
Author note

1ECONOMICS ASSIGNMENT
Table of Contents
Answer 1:...................................................................................................................................2
Answer 2:...................................................................................................................................2
Answer 3:...................................................................................................................................3
Answer 4:...................................................................................................................................4
Reference:..................................................................................................................................5

2ECONOMICS ASSIGNMENT
Answer 1:
Real GDP is the measurement of the total macroeconomic output adjusted against the price
changes (Berger and Sedunov 2017). According to the same source, real GDP per capita is
the measurement of individual’s income share out of total economic wealth of a nation.
Higher real GDP means that economy has achieved better efficiency in production and it has
grown substantially over the time. However, it may not be the case that higher real GDP
always ensure higher real GDP per capita. If the number of population is higher, then
irrespective of the real GDP growth, per capital real GDP will eventually fall (Bulman, Eden
and Nguyen 2017). On the other hand if the economic output has increased slightly and the
number of population is low, then the slight change in real GDP can cause a great amount of
rise in the real per capital real GDP.
Considering this, it can be seen the Sydney has become one of the largest and most
important city in the Australia. It houses more than 5 million population and with rise in the
population, productivity of the state has also enhanced (Martin 2018). However, due to rise in
population through migration from different state of the country, Sydney’s real per capita
GDP has fell over the time. Thus, the main reason of the difference in Sydney’s real GDP and
per capita real GDP difference is the rise in population through migration.
Answer 2:
During 2016-17 there was high amount of growth in regional Victoria and according
to the statistics it grew at the 5.8% annual growth rate, which is much higher than the NSW’s
1.5% annual growth rate (Martin 2018). According to Sgsep.com.au (2018), more than 40%
of the growth rate of regional Vitoria came from the strong agricultural production and along
with this boost in the food manufacturing has curtailed the growth rate for regional Victoria.
Compared to this NSW faced reduced investment and financialisation in the state that has
caused reduced amount of growth for this.

3ECONOMICS ASSIGNMENT
If these two different rate of growth prevail for next 20 years, then it would cause
polarisation among the states. Over the year regional Victoria has reduced the unemployment
rate from 6.6% to 4.9% that showcase considerable amount of job creation in the region
(Staff Writer 2018). Following the same, if the growth difference persist, then more people
will migrate from NSW to regional Victoria, which will deteriorate the economic growth of
NSW further.
Answer 3:
Limitation of GDP:
 GDP is the aggregate of total goods and services produced by an economy within a
financial year and it does not includes any market transaction like voluntary or
domestic work (Osberg 2015). Though these have substantial amount of share in
social welfare, GDP fails to consider it, thus there is loop hole in the social welfare
measurement strategy of the GDP.
 GDP fails to incorporate the wealth distribution, thus it fails to measure the polarity in
the population too. If there is high magnitude of wealth inequality, then GDP cannot
reflect the same and fails to measure the social welfare at all.
Alternative measurement:
Human development index – it has been constructed to gauge the loopholes of the
GDP measurement and it includes standard of living, life expectancy, education and
health along while utilising the GDP of the nation (Levchenko and Zhang 2016).
Thus, it takes care the social welfare factor and measures the economic growth too.
Social Progress Index – It is another extensive framework for measuring the social
welfare. Considering the opportunity, well-being and human needs it measure the
social welfare and aids to determine the level of economic growth of a nation
(Ravallion 2017).

4ECONOMICS ASSIGNMENT
Answer 4:
Liquidity in the money market is one of the key factor that drives the economic
growth. If the Reserve Bank of Australia push up the cash rate in the Sydney, then it can be
hoped that it will hold the rapid growth of the economy and save the country’s economy from
polarisation. As highlighted by the Martin (2018), Sydney is the capital of financial service of
the country and if government fails to constraint this, then it can bring in crisis in the
economy. With rise in the cash rate government can effectively dry up the liquidity in the
market, which will lead to fall in the aggregate demand (Guerrieri and Lorenzoni 2017). With
lower aggregate demand, there will be fall in production as well as rise in the cost of the
goods and service in the country leading to rise in the inflation. Finally it will allow the
Sydney’s economy to hold its cannon balling effect on the annual GDP growth rate.

5ECONOMICS ASSIGNMENT
Reference:
Berger, A.N. and Sedunov, J., 2017. Bank liquidity creation and real economic
output. Journal of Banking & Finance, 81, pp.1-19.
Bulman, D., Eden, M. and Nguyen, H., 2017. Transitioning from low-income growth to high-
income growth: is there a middle-income trap?. Journal of the Asia Pacific Economy, 22(1),
pp.5-28.
Guerrieri, V. and Lorenzoni, G., 2017. Credit crises, precautionary savings, and the liquidity
trap. The Quarterly Journal of Economics, 132(3), pp.1427-1467.
Levchenko, A.A. and Zhang, J., 2016. The evolution of comparative advantage:
Measurement and welfare implications. Journal of Monetary Economics, 78, pp.96-111.
Martin, P. (2018). Sydney powers the nation, accounting for almost half of Australia's
economic growth. [online] The Sydney Morning Herald. Available at:
https://www.smh.com.au/business/the-economy/sydney-powers-the-nation-accounting-for-
almost-half-of-australias-economic-growth-20171204-gzyj04.html [Accessed 14 Apr. 2018].
Osberg, L., 2015. Book Review of Beyond GDP: Measuring Welfare and Assessing
Sustainability. The Journal of Economic Inequality, 13(3), pp.479-484.
Ravallion, M., 2017. Poverty comparisons. Routledge.
Sgsep.com.au. (2018). Economic performance of Australia's cities and regions - SGS
Economics & Planning. [online] Available at:
https://www.sgsep.com.au/publications/economic-performance-australias-cities-and-regions
[Accessed 14 Apr. 2018].
Staff Writer (2018). Regional Victoria Building Growth Higher than in Melbourne. [online]
The Urban Developer. Available at: https://theurbandeveloper.com/articles/regional-victoria-
building-growth-employment [Accessed 14 Apr. 2018].