Macroeconomic Analysis Report

This report delves into macroeconomic concepts, including the significance of real and nominal interest rates, the implications of recession and depression, and various types of unemployment. It highlights the impact of these factors on the economy, particularly in Australia, and discusses the historical context of economic downturns. The report concludes with insights on how these economic conditions affect individuals and the overall market.

macroeconomic

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.a) Dollar is always worth a dollar ............................................................................................1
b) Real and nominal rate of interest.............................................................................................1
2.a) Recession and depression ....................................................................................................2
b) Great depression people is having different propensity to save the money than other people2
3.a) Equilibrium price .................................................................................................................3
b) Domestic quantities ................................................................................................................3
c) Effects of domestic quantities..................................................................................................3
4. Types of unemployment..........................................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Macroeconomics is a branch that deals with behaviour and performance of the economy.
It includes unemployment, inflation, growth rate and gross domestic product (Agénor and
Montiel, 2015) main objective of macroeconomics is to maximising national income and
providing economic growth of the country.
Report will include real and nominal rate of interest and defines recession and depression
period that leads to economic downturn in the economy. Furthermore, it will include difference
between the people who has experienced the great depression with that of only heard about this
situation and types of unemployment in the Australian labour market.
MAIN BODY
1.a) Dollar is always worth a dollar
Dollar is the currency that is being used in many countries. Australian dollar was
introduced on 14 February 1966. Price of dollar is lower down as compared to other currencies
in the market. As the present worth of the dollar is more as compared to its value in the future. At
the time of inflation the price is increases that will decrease the value of money as the time
changes that will result in changing of general price level(Rachel and Smith, 2015) the value of
dollar gets decrease that will lead to decrease in the value of currency of Australia.
If the dollar is having lower price in the economy then less foreign goods is being
purchased. This will increase price of imports contributing to inflation in the economy. If the
price of the dollar is getting weak then it will help in increasing exports. This will help in
boosting the economic growth that attract more foreign customers into Australia.
b) Real and nominal rate of interest
Real interest rate is the difference between nominal interest rate and inflation rate. It
states that actual purchasing power of the money will account in increasing bank account over
time. Real rate on interest is considered to be predictive when the inflation rate is not known.
The real interest rate provides information to the investor of real rate that they will receive after
inflation (McAndrews, 2015)is provides idea regarding the increase or decrease of price in the
economy. These rates are determined from the nominal rate of interest. It can be represented as:
Real Interest Rate= Nominal Interest rate- Inflation rate
Nominal Interest rate do not affect the inflation rate in the economy. This shows the
actual price that is being paid by the lender without effect from inflation rate. This include nabl
1

interest rates, loan interest etc. It cannot be negative. In this type of rate there is no adjustment of
inflation in the money. It will be calculated by considering monetary value. It can be represented
as:
Nominal Interest rate= Real interest rate+ inflation rate.
Real rate of interest is more relevant to the economy.
2.a) Recession and depression
Recession is the condition in the economy that comes when the prices will decline
significantly for shorter period of time i.e. for six months. It leads to drop in the factors such as
retail, manufacturing, income employment and the GDP of the country. It is the phase in which
GDP is negative for two quarters. Recession comes first of all in manufacturing jobs. As when
the manufacturing department stops hiring that will decrease the slow growth in other sector of
the economy (Laubach and Williams, 2016).Begins when the economy reaches to its peak and
the economy start its expansion in other sector of the country. At the time of this period
purchasing power of consumer will decrease as prices are high and everyone cannot afford that
price. It causes loss of business and consumer confidence
Depression refers to the economic condition that will lead to contraction in the
marketplace for one year. It has a great impact on the economy regarding price of the country.
Business cycle of the economy will get disturbed from the recession and depression stages of
cycle. This is the phase that will a great impact on economy as consumers are not purchasing
goods and services from the market. Market condition remains constant as there is no such price
exchange will be there.
The great depression phase was takes place in 1929 and it was last up to 1930. It is the
most widespread period of depression of the 20th century(Holston, Laubach and Williams,
2017)As in 21st century also this depression will take place and is common in the worldwide.
Another phase is of 2000s and 2010s in which depression period takes place.
b) Great depression people is having different propensity to save the money than other people
People who has experienced the period of depression and the people who is only seeing
this period of time is having different propensity to save the money. As at the time of depression
prices is getting down of goods and services that will an impact on economy. People who has
faced this phase of depression will know that how to save money for the future. As depression is
run out for longer period of time so people have to save money for that period. The propensity of
2

saving money is higher of that who is experience this phase they know that it is the difficult time
for country to survive as people below poverty have to suffer a lot as at this time they cannot
fulfil their basic needs(Anderson, Bordo and Duca, 2017(his phase will have greater impact on
the economy that will lead to disturb the life of the people. At this time purchasing power of the
consumer will affect as they have to save money for future if business cycle gets disturbed and
affect the life of the people. Depression and recession are both similar only difference is that of
time period depression last for one year while recession is for 6 months.
3.a) Equilibrium price
D= 12300-240p
S= 6700+60p
12300-240p=6700+60p
12300-6700=60p+240p
5600=300p
P= 18.6 Equilibrium price
=12300-240*18.6
=12300-4464
Equilibrium production=4464
b) Domestic quantities
p=20
D= 12300-240p
S= 6700+60p
D= 12300-240*20
=7500 quantity demanded
S= 6700+60*20
S= 7900 quantity supplied
c) Effects of domestic quantities
t=20+1
p=21
D= 12300-240*21
=7260
S= 6700+60*21
3

=7960
4. Types of unemployment
Four types of unemployment are as follows:-
Frictional Unemployment:- It refers to the situation when employees of the company leave
their job and did not get another job and remains unemployed. Most of the employees leave the
job voluntarily for getting better option than the present one (Ohanian, 2017).is for short period
of time. It will be beneficial for the economy as it give opportunity to the freshers for showing
their talent in their particular fields.
Structural Unemployment:- This refers to unemployment that arise in changing of demand as
consumer switches to different work. As this type of unemployment leads because of the
mismatch in the skills of the worker with its work in the company. Recession also creates
structural unemployment. It is a long term unemployment that leads to changes in the economy.
Seasonal Unemployment:- This type of unemployment occurs on the seasonal basis in the
economy. As in some industries like tourism and soft drink demand and supply for goods and
services seasonally fluctuate. It is also a part of natural unemployment.
Long term unemployment:- It is the situation when an individual is looking for a job over 27
weeks. An individual remains unemployed for longer period of time. The rate of long term
unemployment is increasing day by day in the economy (6 Types of Unemployment and What
Makes Them Different, 2019).
CONCLUSION
From the above study it can be concluded that real and nominal rate of interest affect the
functioning of economy. As there is business cycle that will affected by the period of recession
and depression in the economy. However, depression occur for long term while recession occur
for short period of time. People may suffer at the time of depression and recession period that
will lead to disturb the life of people. Therefore, there are different types of unemployment in the
economy such as structural, seasonal, frictional and long term unemployment.
4

REFERENCES
Books and Journal
Agénor, P.R. and Montiel, P.J., 2015. Development macroeconomics. Princeton University
Press.
Anderson, R.G., Bordo, M. and Duca, J.V., 2017. Money and velocity during financial crises:
From the great depression to the great recession. Journal of Economic Dynamics and
Control.81.pp.32-49.
Holston, K., Laubach, T. and Williams, J.C., 2017. Measuring the natural rate of interest:
International trends and determinants. Journal of International Economics.108.pp.S59-
S75.
Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
Laubach, T. and Williams, J.C., 2016. Measuring the natural rate of interest redux. Business
Economics.51(2).pp.57-67.
McAndrews, J., 2015. Negative nominal central bank policy rates: where is the lower
bound? (No. 168). Federal Reserve Bank of New York.
Ohanian, L.E., 2017. The Great Recession in the Shadow of the Great Depression: A Review
Essay on Hall of Mirrors: The Great Depression, the Great Recession, and the Uses and
Misuses of History, by Barry Eichengreen. Journal of Economic Literature.55(4).pp.1583-
1601.
Rachel, L. and Smith, T., 2015. Secular drivers of the global real interest rate.
Online
6 Types of Unemployment and What Makes Them Different.2019.[Online].Available
through<https://www.thestreet.com/personal-finance/education/types-of-unemployment-
14721084>
5

6

7

8

9

10