Macroeconomics Project 2: Impact of COVID-19 on Australian Economy

This Macroeconomics project examines the Australian economy, focusing on the period before and during the COVID-19 pandemic. The project begins with an analysis of the state of the Australian economy prior to 2020, highlighting the growth in GDP and the factors contributing to it, such as household spending, company investments, and exports. The project then explores the impact of the pandemic, discussing challenges like rising unemployment, inflation, and economic inequality. It investigates how GDP affects unemployment and inflation rates, and identifies supply chain disruptions and reduced consumer spending as major shocks. The report analyzes the long-term outlook for the economy, considering factors such as sources of long-term prosperity, the impact of the pandemic on productive capacity, the effect of climate fluctuations, and the measurement of economic prosperity and well-being. The student has provided a consultancy report, including an executive summary, introduction, and detailed analysis of the economic conditions and challenges faced by the Australian economy. The report also references a news article discussing the relationship between GDP and inflation.

Macroeconomics 1
ECON1010
Semester 1, 2022
Project 2
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Summary of news articles
The selected article talks about the relationship between the GDP of a
country and the Inflation rate that the country has. GDP and inflation are
frequently linked because governments and central banks rely on these data to
make decisions and seek to control them. A central bank may lower interest
rates to make borrowing more appealing if an economy is not growing or not
growing fast enough. The argument is that it will boost spending, resulting in
an increase in GDP. The disadvantage of this action is that, contrary to
common opinion, it will cause inflation.
If an economy grows too quickly, it may lead to shortages as people want
items and services quicker than they can be delivered. In this case, steps may
be taken to slow GDP. This might be accomplished by raising interest rates,
which is seen as a way of making money more difficult to get by by making
borrowing more expensive. Many believe that this will assist to curb inflation
since it will reduce demand for goods and services. Problems occur, however,
since activities aimed at influencing GDP and inflation may not deliver the
desired results, fueling the argument about their link.
News article
Title of article: What Is the Relationship between GDP and Inflation?
Name of author/reporter: Felicia Dye
Name of website/publication: Smart Capital Mind
Weblink: What Is the Relationship between GDP and Inflation?
(smartcapitalmind.com)

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Consultancy Report
Title of your report
Executive summary
As it is concluded from the below report in this case study of macroeconomics mainly discuss about
the impact of pandemic in Australia economy before the time of Covid-19. It briefly describe that
before the year of 2020 the performance of the country is better and they more focus upon the
growth and expansion of the country. After that it also explain about the various challenges which
arises at the time of Pandemic situation. In which some main challenges are come in front such as
unemployment rate, inflation rate and economic inequality. These challenges create a major impact
on the performance of the economy at the time of Pandemic. Afterwards it analyse that how Gross
domestic product affect the unemployment and inflation rate of the economy. At the end it analyse
long term outlook of the economy.
Introduction
This report discuss about the state of the Australian economy before the Covid-19 pandemic
and how it affect the country and the various of industries which create an impact on their business
as well as the GDP of the economy and the economic challenges also which arises at the time of
pandemic in Australian nation (Ahn, 2021). There are some challenges faced by the Australian
country such as unemployment rate, cost of living, economic inequality, confidence and mental
health. At the end it also analyse the long term Outlook in which it explain the sources of long –
term prosperity, Impact of pandemic on the economy's productive capacity, forecast the effect of
climate fluctuations on economic prosperity and Measure the economic prosperity and well-being
of an Australian country in a broader sense.
1. What was the state of the economy before the COVID-19 pandemic?
The economy of Australia has continuously grow and develop in a larger sense before the covid-19
Pandemic. The Gross domestic product of the country is always increases and beat all the
expectations of the economy. Before the time of pandemic on the basis of Australian statistics

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report show that the Households spending, investment by companies and More prices of Iron, ore
and gas exports assist to drive the growth and development (Bello and Ahmed, 2019). This topic is
also discuss about the Difference between the nominal and real GDP, Basically the meaning of
nominal Gross domestic product is that it was the value of market in which the final Production of
goods and services within a nation in a given particular duration of time in which that year's prices (
also known as current prices) on the other hand the Real GDP of the country adjust the level of
outcomes for any fluctuations in prices that may have incurred over time. Another main difference
of Nominal GDP is, it relate the different quarters of a specific year and in Real GDP it relate two
or more financial years. AT last in Nominal GDP it inform about the prices of current year and in
real GDP it inform about the starting year price or regular price.
GDP of the Australia is directly connected to the unemployment and inflation of the nation,
basically At the of pandemic GDP of the country falls then its bad situation for the economy and it
will automatically create unemployment and more people loose their jobs along with it also create
the situation of inflation in the country and create high inflation rate in the economy. But before the
time of pandemic GDP was in the stable situation also the unemployment and inflation not create an
impact on the economy at that particular point of time in the country Australia.
2. What has been the impact of the COVID-19 pandemic on the
economy?
Covid-19 pandemic create a major impact in the performance of economy. Because at the time of
pandemic it majorly affect the household sector, business sector and economical sector in the
economy. Basically this pandemic create problems into the supply chain and lack of financial funds
in the hands of consumer (Chen, 2019). It also create a problem for businesses also specially those
organization which are dealing in other countries for the business purpose and it reflects the
lockdown along with the east coast of Australia and the number of cases increases in the society
but in the month of June gross domestic product increases 9.6% and the demand of domestic final
goods increases upto 1.7%, consumer spending upto 1.1% and business investment Upto 2.3%.
There are two shocks which affect the business at the time of pandemic:
1. Problems in supply chain of products: This is one of the major shock for the economy that is
decrease in supply chain of the product that means decrease in aggregate supply of the product. At
the time of pandemic duration australian economy face the lockdown in every states of the country.
Because of this it creates a big problem for those industries who supply their products outside the

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country and another one big reason is that every firm produce limited products and because the old
stocks of that industries remain with them so, they produce less and supply less in a limited
quantity.
2. Lack of availability of financial funds with the consumers: At the time of pandemic economy
faced a very difficult problem. Because of the pandemic every individual also suffer the lack of
availability of funds due to decrease in income of the person. Generally at that time many individual
loosing their jobs due to decrease in the growth rate of GDP and its create unemployment in the
economy (Cristina Terra, 2019). Because of this aggregate demand in the economy of a particular
goods and services also decreases. If the income of the consumer decreases then its shifts from one
product to another product.
Impact of these shocks on Australian economy
The above figure show that the the short run- aggregate supply intersect the curve of Long run –
aggregate supply basically it normally show that the short run aggregate supply curve cuts
aggregate demand curve and meet at the break-even point. Basically this curve generally inform
that if price of the product decreases then it also shows the changes in income of the consumer as
well as the aggregate demand which is also decreases (Kahelin, 2018). On the other hand, another
figure show increases in price and because of this the income capacity to spend the consumer on
that particular commodity is also decreases that means it also create an impact on the aggregate
demand of the commodity also.

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3. Economic challenges arising from the pandemic
At the time of Pandemic Australian economy face so many problems because from this virus so,
many people in the economy affect from this disease and it create a major impact on the
performance of the economy also . So, Many people loose their jobs and costs of living. This
happen only because of declining in the growth domestic product of the country. If GDP of the
economy decreases then its create unemployment and inflation in the country. So, on that basis
these are the major challenges face every individual in the economy and fight for their survival in
the economy (Nachane, 2018). At the time of pandemic many businessman unable to generate
income in their organization so, they remove their staff so, many peoples who are coming from the
middle class they face so many difficult to maintain their standard of living and spend their savings
to full the basic necessity. Also the another challenge some individual in the economy had face
that is they pay for their living. At the particular time every individual in the economy has pay high
price for every commodity that means facing inflation (Nandasari, 2020). Basically at the time of
pandemic because of the lack of financial funds country face inflation and pay higher prices for the
commodity. There are some challenges which arises at the time of pandemic:
3.1 Unemployment
During the period of Covid-19 Australian economy face high unemployment at the time of
pandemic. It majorly create an impact on the those workers who are coming from the lower
backward classes and work hard for their survival and fulfill its basic necessity. It is very
problematic situation from them to mange the expenses without any employment.

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The above graph clearly show that the before pandemic the unemployment rate is very low
basically the above image clearly show that the before 2020 the rate is very low but after 2020 its
very increases and many people face the unemployment in the economy because of that standard of
living for most of the person remain low and because of that they shift more from the cheaper
products. But after the completion of pandemic period in 2022 the graph show the less
unemployment rate that basically means many organization give a better opportunity to those
persons who are unemployed and provide them a job.
3.2 Costs of living
During the time of pandemic economy of Australia face inflation because at that particular point of
time demand for every commodity decreases because of high price of the product and because of
this every individual in the economy shifts into the cheaper products basically the main reason is
every individual not have a sufficient income at the time of pandemic. Every person use their
savings to pay for their expenses to complete the basic necessities. Inflation increases because of
declining the gross domestic product of the economy (Ogawa, 2018). At the time of inflation export
of goods and services in the Australian country was very difficult there are two main reasons one is
complete lockdown in country and another one is highi inflation rate if any of the country sell their
product in another country at the time of inflation it takes high price and decrease the value of that
country currency. So, in that circumstances no country supply its product in Australian country that
is the very big reason which create the high price of that product.

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The above graph explain that before the time of pandemic the rate of inflation is not higher.
Basically the image clearly show that in 2017, 2018 and 2019 the inflation rate was not so high at
the particular point of time everything goes smoothly that means the performance of the economy is
stable and at that time the main focus of the Australian country is the growth and development of
the economy. But in the mid of the year 2019 and 2020 the inflation rate of the economy is very low
that means negative but after the beginning of 2020 the inflation rate was increasing slowly and
touch the heights. At that time many peoples loose their jobs and struggling for their survival.
3.3 Economic inequality
It is very important for the young adults which create a risk and impact on long-term basis of covid-
19 limitation which involves in pandemic messaging and required planning. Across all fields, it
engage the young adults – specifically those historically underserved ( this basically means those
who are living in rural and remote areas and diverse persons) to communicate to their experiences
and to main actions and future priorities.
3.4 Challenges arises in economic well-being and opportunities
It solve the opportunities for young adults to stabilize and meaningful position, and full- time job
along with growth and development opportunities (Ramlan and Ram, 2018).
It provide financial relief on a short-term basis and strategies planning for a longer-term for the
young adults who are effected by unemployment, food and housing insecurity and lack of
employment opportunities
3.5 Confidence and mental health

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It Develop a proper plan for population mental health for young persons that shows individual,
social and structural determinants of health. Expand and develop the availability and approach to
the service of mental health for example; counsel ling beyond the situation care. During the period
of pandemic Australian government declare lock down across all the states of the country. Basically
it the economy most of the person depressed during the time of pandemic because it stop the inflow
of income and expenses of every household was increases and some individuals depressed because
of loosing their jobs. Some people are getting depressed and loosing the confidence because of
increasing number of cases in each and every day and business persons also loose their confidence
because of their bad business condition. Because of low demand of their product and in a limited
quantity (Reardon and Madi, 2019). Inflation also affect the mental health of the economy. Every
person in economy think more before spend at the time of pandemic and business affect because of
the inflation low demand of their product and many customers shift into the less and cheaper
commodities.
4. Longer-term outlook
4.1 Understanding sources of long-term economic prosperity
To attain the long term economic prosperity in the country, there is a need to optimum utilisation of
labour and capital in the most effective manner. Long term potential growth is a function of the
available stocks, raw materials, labour, input and current technology with good market research. For
strengthening a country's potential output in the long run, some important ingredients such as:
Raising human capital
Labour market reforms
Fill investment needs
Education and health improvements
Raising productivity
Raising human capital would lift both labour supply and TFP (Total Factor Productivity) growth.
And reforms in labour market brings ease in the efficiency and effectiveness of the workers by
considering their choices and preferences. A better educated workforce is more helpful in securing
productivity than uneducated one (She, 2020). With increase in productivity and friendly business
climate, the country is able to improve its stability in the whole economy which brings long term
economic prosperity.
4.2 Effects of the pandemic on the economy’s productive capacity

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The pandemic has changed many aspects of daily life of people. It transforms the economy and
disrupt every business organisation's activities and their work criteria as well. There are two major
changes which occur in production after pandemic is termination of non-essential production
activities, such as hospitality, arts and entertainment, personal services travel and airlines, to help in
reducing the spread of pandemic and the other is the widespread shift from in-office work to work
from home which is enforced by lock down and restrictions enforced by pandemic (Shobbarin,
2019). The work from home culture has widely effected the way people interact virtually with their
teams and IT systems and also how they spend their working days. The idea behind productivity is
how efficiently the production system transforms inputs into outputs.
4.3 Predicted effects of climate change on economic prosperity
In a year when populations struggled to mitigate the impact of the COVID-19 pandemic, the Planet
Economic Forum's Global Risks Report 2021 ranked climate action failure as the most impactful
and second-most likely long-term danger confronting the world. According to the research, billions
of people throughout the world are at danger of missing out on future economic possibilities and the
advantages of a strong global society.
Climate change, according to the Fourth National Climate Assessment, could substantially damage
the US economy if we do not reduce greenhouse gas emissions and begin to prepare (Xia, 2018).
Warmer temperatures, rising sea levels, and extreme weather will harm property and vital
infrastructure, as well as human health and productivity, and significantly impact agricultural,
forestry, fisheries, and tourist industries. As power generation grows less dependable and water
sources become scarce, energy consumption will rise. Damage to other nations across the world will
have an impact on US industry through trade and supply chain disruptions.
A recent analysis looked at how climate change might effect 22 major economic sectors under two
scenarios: if global temperatures climbed 2.8 degrees Celsius from pre-industrial levels by 2100,
and if they rose 4.5 degrees Celsius. Climate change impacts on these 22 industries may cost the US
$520 billion per year, according to the report, if the higher-temperature scenario occurs. It would
cost $224 billion less if we could keep the temperature at 2.8 degrees Celsius. In any event,
according to another research, the United States is second only to India in terms of economic losses
due to climate change.

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4.4 Broader measures of economic prosperity and wellbeing
GNH
Gross national happiness (GNH) is a measure of economic and moral advancement developed by
the monarch of Bhutan in the 1970s as a substitute for gross domestic product. Gross national
happiness considers a changing mix of quality-of-life characteristics rather than concentrating
solely on quantitative economic measurements (Uzan, 2021).
"If the government cannot provide happiness for its people, there is no purpose for the
government," the kingdom of Bhutan's first legislative code proclaimed at the moment of
unification in 1729.
Beyond GDP
The Beyond GDP programme aims to provide statistics that are as clear and appealing as GDP
while also taking into account environmental and social factors. GDP and other economic indicators
were never intended to be complete gauges of wealth and well-being. To address global concerns of
the twenty-first century such as climate change, poverty, resource depletion, health, and quality of
life, we need appropriate indicators (Vutz, 2020).

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The Beyond GDP partners are continuing to work on enhancing our measurements of progress,
wealth, and well-being, fueled by the success of the 2007 conference. The European Commission
published its road map, "GDP and Beyond: Measuring Progress in a Changing World," in August
2009. The Communication lays out a five-point EU strategy for improving our progress indicators
in ways that address citizens' concerns and take advantage of new technological and political
advancements.
References
Ahn, Y., 2021. Dimension Aberration, Reverse Causation and Certain Manifest Errors in
Macroeconomics. Reverse Causation and Certain Manifest Errors in Macroeconomics
(April 18, 2021).
Bello, A.I. and Ahmed, O.A.T.A.O., Macroeconomics and Monetary Economics.
Chen, W., 2019. Essays on macroeconomics with microeconomic heterogeneity (Doctoral
dissertation, Boston University).
Cristina Terra, T.H.E.M.A., 2019. Principles of International Finance and Open Economy
Macroeconomics.
Kahelin, A., 2018. Business cycle persistence in contemporary macroeconomics: a literature review.
Nachane, D.M., 2018. Towards a New Synthesis: New Consensus Macroeconomics. In Critique of
the New Consensus Macroeconomics and Implications for India (pp. 83-108). Springer,
New Delhi.
Nandasari, E.A., 2020. Credit Quality Stress Tests Based on Macroeconomics at Bank Persero in
Indonesia in 2008-2016 (Doctoral dissertation, STIE Perbanas Surabaya).
Ogawa, T., 2018. Essays in Macroeconomics with Heterogeneous Banks. The University of
Wisconsin-Madison.
Ramlan, H. and Ram, N.S., 2018. Determinants of Macroeconomics Indicators on the Economic
Growth in Malaysia. Global Business & Management Research. 10(3).
Reardon, J. and Madi, M.A., 2019. Suggestions for incorporating sustainability into the
macroeconomics cours. In Principles and Pluralist Approaches in Teaching
Economics (pp. 152-168). Routledge.
She, Y., 2020. Essays on Macroeconomics of Monetary and Fiscal Policies.
Shobbarin, A.A., 2019. An Empirical Analysis of Rentability and Macroeconomics Affecting
Liquidity on Indonesian Islamic Bank. In International Conference on Industrial
Revolution for Polytechnic Education (Vol. 1, No. 1).
Uzan, M., The Macroeconomics of Global Imbalances.
Vutz, J., 2020. Essays on the Role of Safe Assets in International Macroeconomics (Doctoral
dissertation, Princeton University).
Xia, T., 2018. Essays on International Macroeconomics and Policy. University of California, Davis.
(Please see next page to complete your Groupwork contribution statements)

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Understanding the value of groupwork
Individual version of project
[Even though you have not completed this project as a group, this project is still an opportunity to
reflect on the elements that matter for groupwork and successful collaboration. To build your
groupwork skills, it is expected that all students read the RMIT Learning Lab Groupwork module.
The link to this module is included in the Project page on Canvas.
https://emedia.rmit.edu.au/learninglab/content/group-work ]
[Write a paragraph (eg. 4-5 sentences) reflecting on the questions: What factors are important for
working effectively as a group? What strategies can you take to foster effective groupwork? In
your answer, you should refer to your experiences of working in a small group during your weekly
tutorial activities in this course. You should aim to focus on the constructive lessons that you can
take away from your experiences, as this will be valuable for your professional career in the
future. In your reflective statement, you should also specify what was the most valuable piece of
information that you gained from the RMIT Learning Lab module on Groupwork.]