Economics Q & A

(Bernanke, 2006) In the beginning of the year, businesses were adding jobs at a robust pace. This caused a noticeable decrease in the unemployment rate. Since that time, the unemployment rate has remained relatively steady. Another contributing factor to the state of the economy is the recent rise in consumer spending. This rise may be a bit surprising due to the recent inflation caused by the increase in oil prices.

Economic Growth Economic growth involves an increase in the value of goods & services that an economy produces over a period of time caused by changes in the level of aggregate supply & demand, measured by the annual rate of change in real GDP. Since Australia’s 1991 recession characterised by negative -0.2% growth, continuous growth stabilised over the past two decades averaging 3.5% per annum but slowed to 3.1% during the 2000s. As the engine of global growth shifted from USA to China during the 2000s, demand for Australian mineral resources such as coal & iron ore increased by 50% & 80% respectively underpinning growth since 2004 & improving the TOT from 88.6 in 2003 to 153.2 in 2010. Since 2003, commodity prices tripled parallel to increasing commodity demand as 54% of export revenue, thus adding 15% to Australia’s national income & allowing for increased investment of AD. Average growth fell to 1.6% during the GFC as AD components significantly reduced.

Conducting further research on the economic forecasts led to a richer understanding of the selected indicators. The focuses of the economic forecasts were real gross domestic product (GDP) and unemployment. The selected forecasts discussed real GDP and unemployment in depth to give the reader a general understanding of how the economy might respond in the next two years. According to the MBA, real GDP will drop in 2005 in comparison with 2004 and continue to decrease in 2006. In 2007, real GDP will increase slightly in comparison to the previous year.

GDP which is short for Gross Domestic Product is a method for measuring economic growth and prosperity. GDP is measured per year with a specific formula with multiple components: GDP=C+I+G+ X_n In the equation, “C” represents Consumer Spending, “I” represents Investments, “G” represents Government Spending, and the “X_n” represents net exports, which is exported goods subtracted by imported goods that year. Growth is measured by comparing the current years GDP to the previous GDP, and determining whether or not there was a positive or negative percentage of growth. If the amount produced exceeds the previous year, the economy is growing and experiencing expansion of the economy within the Business Cycle. If it is does not surpass the previous year’s growth, the economy is experiencing a recession and contractions of the economy within the Business Cycle.

The latest estimate for fourth quarter fiscal year 2013 is 2.4 percent change in GDP. GDP increased in quarters 1-3 of 2013 but decreased in the fourth quarter. The decrease in the fourth quarter may be problematic for continued economic growth but the general trend of increasing GDP offsets this worry. (see Index 1) Consumer activity Recent changes in economic indicators that monitor consumer activity suggest; that economic growth is occurring ,as evident by an increase in personal disposable income and consumer expectations of the economy. The economic indicators that monitor consumer activity are the Consumer Sentiment Index(CSI), the Personal Consumption Expenditure(PCE), and real personal disposable income.

Right now though productivity numbers released in January showed that it is on the rise, which has keep inflation in check. As productivity is on the rise, corporations are going to require more labors. Unemployment is at an all time low of 4% and is not expected to increase much this year, levels are predicted to be between 4.0-4.25%. The rise in labor productivity will lead to less unemployment, which leads to a higher economic capacity and more money circulating in the market. With a rise in capacity there will be a rise in supply.

This sounds like a report on today's economy but it is not. The current market resembles that of 1987 greatly, so is the market heading for a collapse? No, not for the same reasons as the 1987 market. In 1987 interest rates rose, the return on a 30 year government bond rose from 7% to more than 10% between January and October. Historically a rise in interest rates drives the stock prices down; in 87 the market ignored the rise in interest rates and kept growing setting the stage for a crash.

The global economy and the stages of recovery: As is known, there has been a decline in global GPD growth rates during the last two years due to the global financial crisis which began in August 2007; it is considered one of the most serious crises experienced by the global economy since World War II. According to the latest update to the World Economic Outlook by the International Monetary Fund (January 26, 2010), global GDP growth fell from 5% p.a. in 2007 to 3.2% in 2008, dropping to -.08% by 2009. According to the report, the world economy has begun to expand again, and there have been improvements in financial conditions. It is a significant improvement, but it will still take time to return to where it was in the past.

Macroeconomics The UK Government is pinning its hopes in the growth of the British economy, to help increase its income from taxation and by reducing the size of the public sector. The Office for National Statistics (ONS,2010)[5], confirmed in its press release on 24th November 2010, that the “UK economy grew at 0.8% between July and September 2010”. The 0.8% figure represents a slow down from 1.2% in the second quarter, but is still better than had been expected in the summer (Grierson, 2010)[6].

In December 2008, the National Bureau of Economic announced that the economy had entered into a recession a year ago in December 2007. It took a year for the government to declare that we were in a Recession. The United States was very close to a financial market meltdown and economic collapse in the late 2008 and early 2009. United States entered a severe recession accompanied by considerable job losses, skyrocketing unemployment, lower wages and a mounting number of American families at danger of foreclosure and poverty. The unemployment rate increased from 4.9% in December 2007 to 9.5% in Jun 2009.