Economics Assignment: Economic Analysis of Inflation and GDP Trends

This economics assignment presents an analysis of various economic indicators, including inflation rates, unemployment rates, and real GDP, across different countries (Australia, UK, and US), using line graphs to illustrate trends. Part A focuses on comparative analysis of these indicators, highlighting economic crises and recovery phases. Part B offers economic recommendations for an African country like Egypt, focusing on labor-intensive industries and resource-rich sectors to promote economic growth. It emphasizes the importance of competitive advantages and government initiatives to enhance property rights. Part C analyzes the impact of stock market fluctuations on the economy and the potential for recessions, examining the role of aggregate demand, Keynesian analysis, and the multiplier effect. The assignment includes references to relevant economic literature and provides insights into the relationship between savings, output, and capital accumulation in the long run. This document is contributed by a student to be published on the website Desklib, a platform which provides all the necessary AI based study tools for students.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student:
Name of the University:
Author’s Note

1ECONOMICS ASSIGNMENT
Contents
Part A...............................................................................................................................................2
Answer to Question 1......................................................................................................................2
Answer to Question 2......................................................................................................................3
Part B...............................................................................................................................................4
Answer to Question 3......................................................................................................................4
Answer to Question 4......................................................................................................................5
Answer to Question 5......................................................................................................................7
Part C...............................................................................................................................................8
Reference List..................................................................................................................................9

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Part A
Answer to Question 1
Source- Statista, 2017
Inflation
Rate
Line Graph showing inflation rate of Australia, UK and US
Line Graph showing Unemployment rate of Australia, UK and US

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Unemployment
rate
Year

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Source-Indexmundi, 2017
Source-Statista, 2017
Answer to Question 2
Australia has faced a drastic crisis in the inflation rate in 2008. The lower rate of inflation
reduces the risk of inflation of the economy and gives the economy more stimulus. In 2015, the
economy of US was in the recovery phase. There was slow recovery in GDP and thus the
inflation rate showed a steady increase. The real GDP rate of Australia showed a declining trend
in 2008 and 2009. Moreover, it has also showed a steady recovery in the following years.
Similarly, the real GDP of UK and US also showed a declining phase in 2008-2009 and it has
recovered in the subsequent years.
Line Graph showing Real GDP of Australia, UK and USA

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The unemployment rates of the three economies are almost closely similar to each other.
The population growth rate of the three countries is different and so there is variation in the
unemployment rate of these countries. In 2013-2014, there was crisis in the unemployment rate
in Australia. The unemployment rate is showing a rising trend in this period. The crisis stage of
the Australian economy was very long and many people had to leave the country in search of
new job. In 2010, the economy of Australia was in the recovery phase in terms of
unemployment. This will require adjustment in the exchange rate and fiscal considerations. In
US, the unemployment rate has fallen very drastically in the year 2006. This is the crisis phase of
the US economy. The unemployment rate of US showed that it will take time for US to move to
the recovery stage. The growth of wage of this economy also was very low. The unemployment
rate depicts that the UK needs time to switch to the recovery stage. The hope of recovery of the
UK economy is showing a rising trend as the unemployment level falls (Yao, Fagereng and
Natvik 2015).
Part B
Answer to Question 3
Being an international economic advisor of an African country like Egypt, it is very
crucial to highlight the growth sector where the capital labor ratio is comparatively low. In such
a country, the prices of the goods and services are determined by the consumers where the
various demand and supply factors are not controlled by the government or monopolist or other
higher authorities. (Nwaka, Uma and Tuna 2015).
The two recommendations that will enhance country's growth are as follows:

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Normally, in a labor abundant country will always try o follow the competitive advantage
which will help in developing various kinds of labor intensive industries (Seshan 2014). On the
other hand, in a poor economy, there is some opportunity for the development of dynamic
growth which is vital for a developing country and this kind of development strategy will be
regarded as a poor strategy. Moreover, more jobs will be available in the manufacturing sector
and thus it will absorb the surplus labor of the economy. In such an economy, the income of the
individuals will be based on the earnings of the workers and this will also help in the up
gradation of the economy to a capital intensive industry (Seshan 2014)
Moreover, the comparative advantage of a country rich in resource helps in the
development of those industries which are abundant in resources. Since these countries are rich
in natural resources labor intensive manufacturing industry not only provides the option to attract
excessive labor from rural subsistence sector but it also helps in upgrading higher value added
industry (Sato and Ramchandra 2015).
To summarize, although the banking sector in this country is a bit poor due lack of
education but still it can be said that this country can soon compete with the developed countries
with abundant labor and natural resources and added to that the government sector is taking
proper initiative to enhance the property rights of the people.
Answer to Question 4
Fluctuations in the stock market affect the economy to a large extent. A fall in share
prices affects economic disruption. Stock market crash leads to recession in the economy
because the stocks are regarded as the share of ownership of a particular company. Moreover, the
stock market also helps in reflecting the confidence of the investors and thus helps in their future

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earnings. For example, the corporate earnings in the US economy are dependent on the health
sector. Any disturbance in the economy will create a massive loss to the company. The declining
value of the stock prices also results in loss of the investors. Moreover, a fall in the stock price
also affects the global economic growth rate. Sometimes a crash in the stock market also does
not lead to a recession in the economy. It may be a warning signal for the investors (Gali and
Gambetti 2015.). If the Federal Reserve exchange can help in restoring the confidence of the
investors, it will help in regaining the confidence of the investors. Moreover, stock market crash
also posed threat on the banking sector of the country. The stock market crash also destroyed the
confidence of the investors in further investment in the stock market. There was also a fall in the
trade level due to a fall in the global nature of economic downturn. When the stock market
crashes, the investors will lose a much bigger portion of their wealth and they will not have
enough portion of their money to spend because they have only a less amount of money with
them (Farmer 2015).
Fig-Market Crash and Economic recession
Source- Miao, Wang and Xu 2016

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Answer to Question 5
In an economy, there is greater possibility of recession when there is fall in the economic
growth of the country. However, if the growth of the economy is very low, there will be greater
possibility of unemployment and increase in the spare capacity. According to the Keynesian
analysis, if there is fall in the aggregate demand in the economy, there will be fall in the real
GDP of the country. This effect of real GDP will depend upon the slope of the aggregate supply
curve and thus the economy will be near to full capacity level. This will lead to a fall in the real
GDP of the country. The aggregate demand is comprises of C+I+G+X-M, thus it can be said that
if there is a sudden fall in any of these components, the economy will be in recessionary phase.
The marginal propensity to consume will increase the interest rate and this will lead to a rise in
the cost of borrowing and also help in increasing the saving level. Further, this will also lay
impact on the spending of the consumers. The aggregate demand will also fall further because of
the deflationary fiscal policy in the economy. A fall in the aggregate demand in the economy will
lead to an increase in the multiplier effect (Freitas and Serrano, 2015).

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Fig- Increase in MPS affects output in the short run
Source- Sobrun and Turner 2015
Higher savings rate will help to boost up the economic growth of the country in the long
run. A higher rate of savings results in high level of output and high level of capital in the long
run (Keynes 2016).
Part C
CC

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Reference List
Farmer, R.E., 2015. The stock market crash really did cause the great recession. Oxford Bulletin
of Economics and Statistics, 77(5), pp.617-633.
Freitas, F. and Serrano, F., 2015. Growth rate and level effects, the stability of the adjustment of
capacity to demand and the Sraffian supermultiplier. Review of Political Economy, 27(3),
pp.258-281.
Galí, J. and Gambetti, L., 2015. The effects of monetary policy on stock market bubbles: Some
evidence. American Economic Journal: Macroeconomics, 7(1), pp.233-257.
indexmundi.com 2017. Indexmundi. [online] Available at:
http://www.indexmundi.com/g/g.aspx?v=66&c=as&l=en [Accessed 14 Aug. 2017].
Keynes, J.M., 2016. General theory of employment, interest and money. Atlantic Publishers &
Dist.
Miao, J., Wang, P. and Xu, L., 2016. Stock market bubbles and unemployment. Economic
Theory, 61(2), pp.273-307.
Nwaka, I.D., Uma, K.E. and Tuna, G., 2015. Trade openness and unemployment: Empirical
evidence for Nigeria. The Economic and Labour Relations Review, 26(1), pp.117-136.
Sato, R. and Ramachandran, R.V., 2014. Quantity or quality: the impact of labour saving
innovation on US and Japanese growth rates, 1960–2004. In Symmetry and Economic
Invariance (pp. 177-208). Springer Japan.

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Seshan, G.K., 2014. The Impact of Trade Liberalisation on Household Welfare in a Developing
Country With Imperfect Labour Markets. Journal of Development Studies, 50(2), pp.226-243.
Sobrun, J. and Turner, P., 2015. Bond markets and monetary policy dilemmas for the emerging
markets.
Statista.com. (2017). Unemployment Rate. [online] Available at:
https://www.statista.com/statistics/263710/unemployment-rate-in-the-united-states/ [Accessed 14
Aug. 2017].
Yao, J., Fagereng, A. and Natvik, G., 2015. Housing, debt and the marginal propensity to
consume,". Norges Bank Research Paper, pp.1-38.