Economics for Business: Analysis of Australian Economy and Policies

This economics assignment analyzes the Australian economy, focusing on unemployment and inflation rates, supported by figures illustrating fluctuations over time. It examines the relationship between these variables, referencing the Phillips curve. The assignment further explores the impact of various economic policies on aggregate demand and supply, considering scenarios such as tariffs on chickpea exports, increased demand for Australian wine, government investment in hydroelectric energy, changes in oil prices, and immigration. Each scenario is analyzed using AD-AS curve shifts to demonstrate the effects on price and output levels. The assignment concludes with a list of relevant references.

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

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

2ECONOMICS FOR BUSINESS
Answer 1:
Unemployment rate of the Australian economy has been facing various fluctuations
over the year. As per the figure 1, unemployment rate has been highest during the 2001 and
the unemployment rate has been lowest during 20081. Next to this, unemployment level has
risen again.
Figure 1: unemployment rate of Australian economy
Source: (Created by author)
Considering the figure 2, it can be seen that there has much amount of fluctuation in
the Australian inflation over the year. Since, 2001 it started to fall and during the Global
Financial Crisis during 2008, it started to rise again. During the next one decade the inflation
rate of the Australian economy has faced various ups and downs and the inflation has also
been lowering post 20102.
1 Argy, V.E. and Nevile, J. eds., 2016. Inflation and Unemployment: Theory, Experience and Policy Making.
Routledge.
2 Healy, J., 2016. The Australian labour market in 2015. Journal of Industrial Relations, 58(3), pp.308-323.

3ECONOMICS FOR BUSINESS
Figure 2: inflation rate of Australian economy
Source: (Created by Author)
Figure 3, showcase the comparison between the unemployment and the inflation rate
of the Australian economy. According to the theory, if there is rise in the inflation, it leads to
fall in the unemployment rate. With the rise in the employment level, there will be rise in the
aggregate demand3. As the demand rises, it will enhance the price level as well, thus, it will
increase the inflation rate as well. Thus, according to the Phillips, with rise in the
employment, inflation will fall and vis-à-vis.
3 Gregory, R.G. and Smith, R.E., 2016. 15 Unemployment, Inflation and Job Creation Policies in Australia.
Inflation and Unemployment: Theory, Experience and Policy Making, p.325.

4ECONOMICS FOR BUSINESS
Figure 3: Unemployment and the inflation rate comparison of Australian economy
Source: (Created by Author)
Considering the figure 3 it can be seen that over the year, as the inflation fall,
unemployment of the Australian economy has been rising. The gap between the
unemployment rate and the inflation highlights the situation of the Australian economy.
During 2008, unemployment was the lowest and the inflation was highest in during the
selected time frame showcasing that the Australia economy has been performing according to
the standard theory of the inflation and the unemployment4. As of now, as the unemployment
level of the economy has been rising, inflation has been falling that can be depicted through
the rising difference between these two different variables.
Answer 2:
a:
According to the given condition if India implies tariff on chickpea exports from
Australia, it would increase the price of the same in the Indian market and simultaneously it
will reduce the price of chickpea in the Australian market5.
4 Bhatnagar, S., Cormier, A.K., Hess, K., de Leon-Manlagnit, P., Martin, E., Rai, V., St-Cyr, R. and Sarker, S.,
2017. Low Inflation in Advanced Economies: Facts and Drivers. Bank of Canada= Banque du Canada.
5 Yu, M., 2015. Processing trade, tariff reductions and firm productivity: evidence from Chinese firms. The
Economic Journal, 125(585), pp.943-988.

5ECONOMICS FOR BUSINESS
Figure 4: Policy driven shift of the AD – AS curve
Source: (Created by Author)
As the price of the chickpea will rise in the Indian market, its demand will fall
subsequently. As per the figure one, if the initial demand is AD0, then the demand will fall to
AD1 after the fall in demand. Considering the fact that there will be no change in the supply
due to the fluctuation in the demand, if it is considered that the supply curve (AS) will remain
same, then the new price will be P1 and the quantity demanded will be Y16. Under the new
equilibrium situation price gap will be P0P1 and the difference in the real GDP will be Y0Y1.
b:
In this case, as there will be rise in the demand of the Australian wine in the Chinese
market, it will shift the demand curve substantially.
6 De Loecker, J. and Van Biesebroeck, J., 2016. Effect of international competition on firm productivity and
market power (No. w21994). National Bureau of Economic Research.

6ECONOMICS FOR BUSINESS
Figure 5: Policy driven shift of the AD – AS curve
Source: (Created by Author)
Considering the figure 5, it can be seen that with the rise in the aggregate demand,
AD0 will shift to AD1. Considering the fact that, there will be no change in the supply of the
wine, then, the new equilibrium price will be P1, whereas the new output will be Y0. Thus,
with rise in the demand of the wine, change in the real GDP will be Y1Y0.
c:
Power is essential factor for every organisation that decides the production potential
of a firm. Considering this, if the government investment in producing hydro energy, then it
will aid the firm to have better output capacity with utilisation of the greener energy allowing
to align itself with the governmental laws7.
7 Gillingham, K., Rapson, D. and Wagner, G., 2016. The rebound effect and energy efficiency policy. Review of
Environmental Economics and Policy, 10(1), pp.68-88.

7ECONOMICS FOR BUSINESS
Figure 6: Policy driven shift of the AD – AS curve
Source: (Created by Author)
Considering the fact that there will be rise in the growth of output with the investment
in the hydroelectricity power AS curve will shift from AS0 to AS1. Assuming that, rise in the
output will not change the demand, new level of the output of the economy will be
determined at Y1 and the price will be P1. Thus the rise in the output will be Y0Y1 amount
the fall in the price will be P0P18.
d:
Oil is an essential factor of production, thus if there will be fall in the price of the fuel,
then it will enhance the production capability of the firm and reduce its cost of operation,
hence, will enhance the output of the firm.
8 Montgomery, H.B., 2017. Energy price shocks and macroeconomic performance. Routledge.

8ECONOMICS FOR BUSINESS
Figure 7: Policy driven shift of the AD – AS curve
Source: (Created by Author)
According to the figure 7, with the fall in the price of the oil, AS will shift from the
As0 to AS1. Assuming, there will be no change in the demand, new price will be P1 and the
output will be Y1. Under the new equilibrium situation, rise in the output will be Y1Y0 and
the price fall will be P0P1.
e:
Immigrants can effectively increase the number of the workers in an economy. With
the rise in the number of the immigrants, there will be the rise in the factor of production,
which will increase the output of the economy, leading to fall in the price subsequently9.
9 Bhatnagar, S., Cormier, A.K., Hess, K., de Leon-Manlagnit, P., Martin, E., Rai, V., St-Cyr, R. and Sarker, S.,
2017. Low Inflation in Advanced Economies: Facts and Drivers. Bank of Canada= Banque du Canada.

9ECONOMICS FOR BUSINESS
Figure 8: Policy driven shift of the AD – AS curve
Source: (Created by Author)
According to the figure 8, it can be seen that as the labour will increase, it will lead to
rise in the AS shift from AS0 to AS1. Under the new equilibrium, price will be P1 and the
output will be Y1. Thus, real GDP rise will be Y0Y1 amount and price will fall by P0P1
amount.

10ECONOMICS FOR BUSINESS
Reference:
Argy, V.E. and Nevile, J. eds. ‘Inflation and Unemployment: Theory’, (Experience and
Policy Making. Routledge, 2016).
Bhatnagar, S., Cormier, A.K., Hess, K., de Leon-Manlagnit, P., Martin, E., Rai, V., St-Cyr,
R. and Sarker, S., ‘Low Inflation in Advanced Economies: Facts and Drivers’. (Bank of
Canada= Banque du Canada 2017).
De Loecker, J. and Van Biesebroeck, J. ‘Effect of international competition on firm
productivity and market power’ (No. w21994). (National Bureau of Economic Research
2016).
Gillingham, K., Rapson, D. and Wagner, G. ‘The rebound effect and energy efficiency
policy’. (Review of Environmental Economics and Policy, 10(1), pp.68-88, 2016).
Gregory, R.G. and Smith, R.E. 15 Unemployment, ‘Inflation and Job Creation Policies in
Australia’. Inflation and Unemployment: Theory, (Experience and Policy Making, p.325,
2016).
Healy, J. ‘The Australian labour market in 2015’. (Journal of Industrial Relations, 58(3),
pp.308-323, 2016).
Montgomery, H.B. ‘Energy price shocks and macroeconomic performance’. (Routledge,
2017)
Yu, M. ‘Processing trade, tariff reductions and firm productivity: evidence from Chinese
firms’. (The Economic Journal, 125(585), pp.943-988, 2015).