The Current Status of the Australian Economy
Assignment 3
A Collect, organize, present and analyse a range of data which describes
the current state of the Australian economy(with respect to the trade
cycle).
B Describe and analyse the monetary policy stance which has been adopted
by the RBA over the past 2 years. How effective is monetary policy in
achieving the policy objectives of the government?
Introduction Part A
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This report contains an informed and balanced analysis of a range of
data which assists in depicting the current state of the Australian economy in
relation to the trade cycle.
Relevant Data
For various reasons, economic activity fluctuates from year to year.
Periods of rising activity, output and income are called booms and
periods of slower activity are called a trough. Generally when real
GDP is above 4 per cent p.a. it would be considered a boom year and
when there are technically, two consecutive quarters of negative
economic growth it would be considered a trough or a recession.
In the short term the level of economic activity fluctuates. In some
years, growth is fast and business conditions are booming. In other
years, the level of activity is slow, so growth in output, income and
employment is also less than average. These fluctuations are called
the trade cycle.
There are a number of economic indicators which are useful for
determining what stage of the trade cycle the Australian economy is
currently in, such as Gross domestic product, unemployment, inflation,
interest rates, building approvals and home loan approval, just to
name a few.
Changes in Aggregate Demand
Changes in the level of Aggregate Demand (AD) are critical
determinants of trade cycle fluctuations. GDP is the sum of
consumption, investment, government purchases and net exports. Y = C
+ I + G + NX
The following table outlines these elements and influencing factors.
Elements of GDP
Major factors affecting this component
Consumption (C)
Disposable income (Yd); interest rates (r); expectations about the
future; stock of wealth.
Investment (I)
Past levels of profit; expectations about the futre business
conditions; interest rates (r)
Government expenditure
Determined in accordance with government policy
Net exports
Determined by the interplay of C & I conditions in other countries and
Australia.
Output and Unemployment
As Gans, King and Stonecash state, “Changes in the economy’s output of
goods and services are strongly correlated with changes in the
economy’s utilization of its labour forces”. Generally as
Gross Domestic Product declines then the rate of unemployment rises,
basically as companies produce less goods and services, they require
less staff or are not employing new members, thus the number of people
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