BUS ECON 1: Macroeconomic Performance Analysis of Australian Economy

This report analyzes the macroeconomic performance of the Australian economy from 1990 to 2015. It examines the relationship between Real GDP and several economic indicators, including unemployment rate, inflation rate, cash rate, exchange rate, and net exports. The analysis uses data from sources like the World Bank and the Reserve Bank of Australia to determine the correlations between Real GDP and these indicators. The report finds a negative correlation between unemployment and Real GDP, and a negative correlation between inflation and Real GDP. It also explores the impact of cash rates, net exports, and exchange rates on the country's Real GDP growth. The report concludes by discussing the factors influencing Australia's economic stability and growth during the period under consideration.

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student
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Author Note

1BUSINESS ECONOMICS
Macroeconomic Performance of the economy of Australia
The primary indicator of the economic performance of any country is the Gross Domestic
Product of the country, which in turn is dependent on several other economic variables and their
dynamics. Keeping this into consideration, the assignment tries to analyze the macroeconomic
performance of one of the most stable and developed economies in the global framework, the
economy of Australia (Dyster and Meredith, 2012. For assessing the same, the Real GDP
(Inflation adjusted GDP) of the country is taken for the time period 1990-2015, and its
relationship with the indicators like unemployment, inflation, net exports, cash rate and exchange
rate of the country is analyzed.
The following table shows the correlation between the Real GDP and the above-
mentioned indicators of Australia, within the period of consideration:
Table 1: Relationship between Real GDP and different economic variables
Correlation between Real GDP and different economic variables
Real GDP
growth rate
Cash
Rate
Unemployment
rate
Rate of
inflation
Exchange rate Net
exports
Growth Rate of
Real GDP
1
Cash Rate -0.08 1
Rate of
Unemployment
-0.13 0.28 1
Rate of
inflation
-0.03 0.64 -0.23 1
Exchange rate 0.20 0.04 0.26 0.08 1
Net exports 0.23 0.26 0.55 -0.02 0.85 1

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Real GDP growth rate and Rate of Unemployment
The correlation between the unemployment rate and the Real GDP, as can be seen from
the above table is -0.13, which indicates towards a negative relationship.
1990 1995 2000 2005 2010 2015 2020
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
Growth rate of Real GDP and Unemployment Rate
Real GDP growth rate Unemployment rate
Year
Rate(%)
Figure 1: Unemployment and Real GDP of Australia
(Source: Data.worldbank.org, 2018)
A roughly inverse relationship can be observed between the concerned two variables,
with the rate of unemployment decreasing until 2008, then slightly increasing, and the Real GDP
maintaining a stable growth rate.
Cash rate and Real GDP
The cash rate is the interest rate which the Reserve Bank of Australia charges from the
other banks in lieu of money lent to them (Dyster and Meredith, 2012). The same, being
maintained at a moderately low rate (2.13% in 2015) in the recent periods is seen to have inverse
relation with the Real GDP with the correlation coefficient being -0.08.

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1990 1995 2000 2005 2010 2015 2020-2.00
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Growth rate of Real GDP and Cash rate
Real GDP growth rate Interest rate (Cash rate)
Year
Rate (%)
Figure 3: Cash rate and growth rate of Real GDP
(Source: Rba.gov.au, 2018)
The continuous decrease in the cash rate is accompanies by a stable rate of growth of
Real GDP in the country, as low cash rate stimulates economic activities in the country.

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Real GDP and inflation
Figure 3: Inflation and Real GDP
(Source: Data.worldbank.org, 2018)
The correlation between the two is found to be -0.03, which portrays a unique negative
relationship. This variation from the theoretical assertion of a positive relation can be attributed
to the high debt burden in the country in the recent periods.
Real GDP and net exports
Australia, though maintained a positive trade balance for a prolonged period, however, in
the recent periods there have been several situations of trade deficits:
1985 1990 1995 2000 2005 2010 2015 2020
-2.00
0.00
2.00
4.00
6.00
8.00
Growth rate of Real GDP and Inflation rate
Real GDP growth rate Inflation rate
Year
Rate (%)

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1990 1995 2000 2005 2010 2015 2020
-200
0
200
400
600
800
1000
1200
1400
Growth rate of Real GDP and Net Exports
Net export Real GDP
Year
AUD/billion
Figure 4: Net exports and Real GDP
(Source: Data.worldbank.org, 2018)
Though the correlation (0.23) shows a direct relationship between the two concerned
variables, in the recent periods trade deficits are occurring mainly due to the increase in the
demand of consumption goods and raw materials which are imported (Kumar, Webber and
Perry, 2012).

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Exchange rate and Real GDP
1985 1990 1995 2000 2005 2010 2015 2020
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Growth rate of Real GDP and exchange rate
Real GDP growth rate Exchange rate (AUD/US)
Year
Figure 5: Exchange Rate and Real GDP
(Source: Rba.gov.au, 2018)
The correlation between the two variables for Australia is found to be 0.2, which is
augmented by the above figure which shows that the over the years the exchange rate is kept
between USD 1 and 2, thereby keeping the growth rate of the Real GDP stable (Kumar, Webber
and Perry, 2012).

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References
Data.worldbank.org (2018). Australia | Data. [online] Data.worldbank.org. Available at:
https://data.worldbank.org/country/australia [Accessed 27 Jan. 2018].
Data.worldbank.org (2018). Unemployment, total (% of total labor force) (modeled ILO
estimate) | Data. [online] Data.worldbank.org. Available at:
https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?locations=AU [Accessed 27 Jan. 2018].
Dyster, B. and Meredith, D., 2012. Australia in the global economy: Continuity and change.
Cambridge University Press.
Kumar, S., Webber, D.J. and Perry, G., 2012. Real wages, inflation and labour productivity in
Australia. Applied Economics, 44(23), pp.2945-2954.
Rba.gov.au (2018). Cash Rate | RBA. [online] Reserve Bank of Australia. Available at:
https://www.rba.gov.au/statistics/cash-rate/ [Accessed 27 Jan. 2018].
Rba.gov.au (2018). Historical Data | RBA. [online] Reserve Bank of Australia. Available at:
https://www.rba.gov.au/statistics/historical-data.html [Accessed 27 Jan. 2018].