Economics for Business (ECON101): Australian Economic Analysis

This economics assignment analyzes the Australian economy, examining key macroeconomic indicators such as unemployment and inflation rates over time, highlighting their relationship through the Phillips curve. The assignment further explores the impact of various economic scenarios using the AD-AS model, including the effects of tariffs imposed by India on Australian chickpea exports, increased demand for Australian wine, investment in electricity capacity, falling oil prices, and increased immigration. Each scenario is analyzed to determine its impact on real GDP and market prices, illustrating the effects of supply and demand shifts on the Australian economy's performance and growth prospects. The solution incorporates relevant figures and diagrams to support the analysis and concludes with a comprehensive reference list.

Running head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the student:
Name of the University:
Author note

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Table of Contents
Answer 1:...................................................................................................................................2
Answer 2:...................................................................................................................................4
a:.............................................................................................................................................4
b:.............................................................................................................................................5
c:.............................................................................................................................................6
d:.............................................................................................................................................7
e:.............................................................................................................................................8
Reference:................................................................................................................................10

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Answer 1:
Australian economy has been rising at a substantial rate during the recent years.
Economy has gained much amount of stability post-recession period of 2008 and presently it
is marching smoothly towards the sustainability (Shafiullah et al., 2017). As the economy has
been facing boom in the mining industry, agricultural industry as well as service export
industry, the economy has been providing adequate job to the citizens and controlling the
inflation level moderately.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
1
2
3
4
5
6
7
8
Unempployment rate
Unempployment rate
Figure 1: Unemployment rate of Australia
Source: (Created by author)
Figure 1 depicts that the over the last one and half decade the employment rate of the
economy has face various fluctuation, however it remained within tangible limit. During the
Global Financial Crisis, back in 2008, unemployment rose by a large amount and post this it
has reduced again through the government’s initiation and stimulus packages (Khemka et al.,
2017). In addition to controlling the unemployment rate, the economy has managed the
inflation rate as well through the efficient planning.

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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Inflation rate
Inflation rate
Figure 2: Australian inflation rate
Source: (Created by author)
As it can be seen from the figure 2, over the time inflation rate of Australia has faced
various fluctuations too. There has been high rise in the inflation rate back in 2008 and post
that year, it fell sharply. During the late 2010, inflation rate started to rise again, however,
government with its effective policies controlled the same (Behlul et al., 2017). Presently the
inflation rate of the country is falling, making the standard of living higher for the population
of the Australia.
Now, analysing the association between the Australian inflation rate and
unemployment rate is important for the clear image of the growth prospect of the state.

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7 6.5 5.9 5.3 4.9 4.7 4 4 5.7 5.1 4.9 5.2 5.7 6 6 5.6
0
1
2
3
4
5
6
7
8
Unemployment v/s inflation rate
Unempployment rate
Inflation rate
Unemployment rate
Inflation rate
Figure 3: Australian unemployment rate and inflation rate relation
Source: (Created by author)
In order to study the level of association between these two macroeconomic variable,
it would be ideal to consider the figure 2. It depicts that there is negative relationship between
the unemployment rate of Australia and the inflation rate. This highlights the idea of Phillips
curve holds here, which entails, with rise in the inflation, employment will fall as more firms
will prefer to stop operation under the reduced demand situation, germinated through the rise
in the price of the products in the state (Higgins, 2018). In addition to this, the figure above
also highlights that, as the inflation will rise in future, employment will also change
accordingly for the Australian economy, highlighting the level of association between these
two factors.
Answer 2:
a:
Under open market scenario, if a trading partner impose tariff on the importable, then
it would enhance the price of that good or service in the domestic market and the exporting
country will face reduced demand (Chowdhury et al., 2017). Considering this, if India place a

E1 E0P0
P1
Price
Real GDP
Y1 Y0
AD0
AD1
AS
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30% tariff on the chickpea export from Australia, then it will enhance the price of the same in
the Indian market, leading to fall in the demand of the product.
Figure 4: AD-AS curve shift
Source: (Created by author)
Considering, there is no change in the supply, interpreting the scenario with the AD-
AS model, it can be seen that, fall in the demand will shift the demand curve leftward making
new equilibrium at E1, where the price will be P1 and the output will be Y1 (Hejazi et al.,
2017). This tariff will reduce the Real GDP of the Australian economy by YoY1 amount and
the price will also be reduced in the domestic market.
b:
It is a well-known fact that as the demand rises, it will lead to rise in the price of
goods or service as well as enhance the output of the economy too (Pigou, 2017). Under the
open market scenario, if there is rise in the demand of the Australian wine, then it will
enhance the price and the output of the same.

E0 E1P1
P0
Price
Real GDP
Y1 Y0
AD1
AD0
AS
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Figure 5: AD-AS curve shift
Source: (Created by author)
As it can be seen from the figure 5, AD curve will shift to AD1, making new
equilibrium at E1, where the marketing clearing price will be P1 and the output will be Y0.
Difference between the Y1Y0 is the growth in the real GDP of the Australia and with rise in
the price, economy will face higher growth too (Grauwe, 2018).
c:
With rise in the investment in the electricity capacity, production will increase and it
will provide boost to the economy too. Considering the figure 6, it can be seen that AS curve
will shift from its initial position AS0 to AS1 and new equilibrium will occur at P1 price and
Y1 output.

E0
E1P0
P1
Price
Real GDP
Y1Y0
AD1
AS0
AS1
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Figure 6: AD-AS curve shift
Source: (Created by author)
This investment in the hydroelectricity will enhance the real GDP by y0y1 amount
and reduce the price by P0P1 amount.
d:
As the price falls, it will certainly boost the economy and additionally, there will be
rise in the GDP of the state due to rise in the production germinated through fall in the price
of the oil import.

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E0
E1P0
P1
Price
Real GDP
Y1Y0
AD1
AS0
AS1
Figure 7: AD-AS curve shift
Source: (Created by author)
Considering the figure 7, it can be entailed that with the fall in the price of oil,
production will be higher leading AS0 to shift to the AS1, where the market clearing price
will be determined at P1 and output will be Y1 (Mohaddes & Pesaran, 2017). Thus the fall in
the price of oil will boost the economy to have lower price and higher output by Y0Y1
amount.
e:
Rise in the immigration will enhance the labour and it will reduce the cost of hiring.
With lower cost, more amount of employee can be appointed, which will enhance the output
of the economy (Winston & Karpilov, 2017). With enhance output, price of the good or
service will be lower and the economy will have better growth prospect.

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E0
E1P0
P1
Price
Real GDP
Y1Y0
AD1
AS0
AS1
Figure 8: AD-AS curve shift
Source: (Created by author)
As it can be seen from the above figure, with rise in the output, AS0 will shift to AS1
and the new market clearing price will be P1, whereas the output will be Y1. Thus, with the
rise in immigration intake, economy will enhance its real GDP by Y0Y1 amount and reduce
the inflation as well through reducing the price by P0P1 amount.

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Reference:
Behlul, T., Panagiotelis, A., Athanasopoulos, G., Hyndman, R. J., & Vahid, F. (2017). The
Australian Macro Database: An online resource for macroeconomic research in
Australia.
Chowdhury, A., Liu, X., Wang, M., & Wong, M. S. (2017). Institutions in International
Trade: The Effect of GATT/WTO Membership on Trade Volatility and Trade
Volatility Co-movement.
De Grauwe, P. (2018). Economics of monetary union. Oxford university press.
Hejazi, M., Grant, J. H., & Peterson, E. (2017). Tariff Changes and the Margins of Trade: A
Case Study of US Agri-Food Imports. Journal of Agricultural & Resource
Economics, 42(1).
Higgins, B., 2018. Employment Without Inflation. Routledge.
Khemka, G., Roberts, S., & Higgins, T. (2017). The Impact of Changes to the Unemployment
Rate on Australian Disability Income Insurance Claim Incidence. Risks, 5(1), 17.
Mohaddes, K., & Pesaran, M. H. (2017). Oil prices and the global economy: Is it different
this time around?. Energy Economics, 65, 315-325.
Pigou, A., 2017. The economics of welfare. Routledge.
Shafiullah, M., Selvanathan, S., & Naranpanawa, A. (2017). The role of export composition
in export-led growth in Australia and its regions. Economic Analysis and Policy, 53,
62-76.
Winston, C., & Karpilow, Q. (2017). A New Route to Increasing Economic Growth.