Economics Assignment: Australian Economic Performance Analysis

This economics assignment delves into the analysis of macroeconomic indicators and their impact on the Australian economy. The assignment begins by examining the relationship between inflation and unemployment rates in Australia from 2001 to 2016, supported by the Phillip's Curve theory. The second part of the assignment utilizes the Aggregate Demand and Aggregate Supply model to explain the effects of various economic events on the Australian economy, including tariffs on chickpeas, increased demand for wine, government expenditure changes, oil price fluctuations, and immigration. The analysis provides insights into how these factors influence real GDP and price levels. The assignment includes figures and references to support the analysis.

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

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Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................4
a. Tariff of 30% on Australian chickpeas in India.................................................................5
b. Increase in demand for Australian wine in China..............................................................6
c. Increase in government expenditure...................................................................................6
d. Fall in price of imported oil...............................................................................................7
e. Increase in immigration......................................................................................................9
References................................................................................................................................11

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Answer 1
In the theoretical and conceptual framework of economics, there are several
macroeconomic indicators like that of growth of the Gross Domestic Product, rate of
inflation, unemployment rate and others, the performance and dynamics in which have
considerable impacts on the economic performance of the concerned countries (Mankiw,
2014).
The rate of inflation in a country at a particular point of time shows the average level
of prices of the commodities and services in the country at that point of time. A very high
inflation, thus, implies that the goods and services are quite costly in the country, which in
turn indicates towards higher sufferings for the population of the country. On the other hand,
a very low inflation rate indicates towards low prices of commodities which in turn indicates
lack of encouragement for productivity and may lead to economic stagnation in the country
(Goodwin et al., 2015). Thus, maintaining a moderate and balanced level of inflation is an
important task of the monetary authority of the countries. On the other hand, high rate of
unemployment is heavily detrimental for the economies as it signifies lack of economic
welfare among the population in the country, which in turn indicates towards lack of
productivity and sluggish economic growth of the country.
Keeping the significance of these two macroeconomic indicators into account, the
dynamics of the same and the relationship between the dynamics of the two indicators, for the
globally dominant, highly developed and one of the most stable economies of Australia can
be seen from the following figure:

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4 4.5 5 5.5 6 6.5 7
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Rate of Unemployment and Inflation (2001-2016)
Unemployment Rate
Inflation rate
Figure 1: Rate of Unemployment and Rate of Inflation in Australia (2001-2016)
(Source: Abs.gov.au, 2018)
As is evident from the above figure, there has been considerable fluctuations in the
inflation and unemployment rates of the country in the period of 2001 and 2016. But when
the trend of the relationship between these two variables is observed over the same period, it
can be seen that there exists a visibly negative relation between the rate of inflation and
unemployment rate of the country as can be seen from the negatively sloped trend line
(Corden, 2012). This can be theoretically augmented with the concept of Phillip’s curve in
economics.
Phillip’s Curve
The Phillip’s Curve shows the relationship between the inflation and unemployment
rate of a country and is generally negatively slopes as can be seen from the following figure:

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Figure 2: Phillip’s Curve
(Source: Gordon, 2013)
This argues that when the unemployment is low in a country, that is when the
employment is high, the economic welfare and the purchasing power of people are also high,
which increases the demand in the economy, thereby raising the price levels of goods and
services, implying a higher inflation rate and vice versa. This can be seen to be practically
applicable in case of the economy of Australia between 2001 and 2016.
Answer 2
The movement of the Real GDP and the overall price levels in a country can be
explained with the help of the Aggregate Demand and Aggregate Supply Model of
macroeconomics, which determines the equilibrium level of GDP and price levels by the
interaction of the overall demand and supply dynamics in a country (Rao, 2016).
The Aggregate Demand consist of the consumption expenditure (C), the investment
expenditure (I), the total expenditure of the government of the country (G) and the Net export

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balance (export – import) of the country and an increase in any of these increases the
aggregate demand. At the equilibrium condition of the model, the aggregate demand equates
the aggregate supply in the economy.
a. Tariff of 30% on Australian chickpeas in India
The imposition of tariff implies an increase in the price of Australian chickpeas in
India, which in turn indicates towards a fall in the demand of the same. Thus, the export of
Australia falls, which in turn reduces the income inflow in terms of reduction of net exports.
This in turn reduces the aggregate demand in the country itself, the effects of which can be
shown as follows:
Figure 3: Fall of Australian exports
(Source: As created by the author)
Due to the fall in the aggregate demand, aggregate supply remaining the same, both the
overall price levels as well as the Real GDP of the country falls as can be seen from the
above figure, where P denotes the price level and Y denotes the Real GDP.

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b. Increase in demand for Australian wine in China
The increase in the demand for wine in China implies increase in the export of the
same from Australia which in turn implies that the net exports of the country increases
thereby implying that the income inflow increases which in turn increases the aggregate
demand in the country:
Figure 4: Increase in export of Australian wine
(Source: As created by the author)
This in turn increases both the price and quantity of commodities and services
consumed thereby increasing the Real GDP of the country.
c. Increase in government expenditure
The increase in the government spending for more electric power capacity generation
implies the increase in (G), which in turn increases the aggregate demand, the effects being
same in the country:

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Figure 5: Increase in government expenditure
(Source: As created by the author)
The price levels as well as the real GDP of the country increase.
d. Fall in price of imported oil
On one hand the fall in the price of imported oil leads to an increase in the value of
net exports, thereby increasing net exports (Galí, 2013). On the other hand, oil being one
important component of any industrial production, the cost of production decreases, thereby
increasing supply. The result can be of three types:

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Figure 6: Aggregate demand increase less than aggregate supply
(Source: As created by the author)
Figure 7: Aggregate supply increase less than aggregate demand
(Source: As created by the author)

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Figure 8: Aggregate demand and aggregate supply increases equally
(Source: As created by the author)
Thus, it can be seen that though the price levels may increase decrease or remain the
same, the real GDP is expected to increase in the economy.
e. Increase in immigration
Inflow of immigrants increases the labour supply in the market, thereby decreasing
the cost of labour input in production which increases the aggregate supply in the economy:

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Figure 9: Increase in supply of labour
(Source: As created by the author)
Thus, the price levels fall and the Real GDP of the economy is expected to increase.

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References
Abs.gov.au. (2018). 1345.0 - Key Economic Indicators, 2018. Retrieved from
http://www.abs.gov.au/AUSSTATS/abs@.nsf/mf/1345.0?opendocument#Prices
Abs.gov.au. (2018). 6401.0 - Consumer Price Index, Australia, Mar 2018. Retrieved from
http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6401.0Mar%202018?
OpenDocument
Corden, W. M. (2012). Dutch disease in Australia: policy options for a three‐speed
economy. Australian Economic Review, 45(3), 290-304.
Galí, J. (2013). Notes for a new guide to Keynes (I): wages, aggregate demand, and
employment. Journal of the European Economic Association, 11(5), 973-1003.
Goodwin, N., Harris, J. M., Nelson, J. A., Roach, B., & Torras, M. (2015). Macroeconomics
in context. Routledge.
Gordon, R. J. (2013). The Phillips curve is alive and well: Inflation and the NAIRU during
the slow recovery (No. w19390). National Bureau of Economic Research.
Mankiw, N. G. (2014). Principles of macroeconomics. Cengage Learning.
Rao, B. B. (Ed.). (2016). Aggregate demand and supply: A critique of orthodox
macroeconomic modelling. Springer.