Gross Domestic Product (GDP)
The gross domestic product (GDP) measures of
national income and output for a given country’s economy. The GDP is equal to
the total expenditures for all final goods and services produced within the
country in a specific time period. GDP can be calculated through
Where, C stands for consumption, I stands for
Investment, G government funds and net export or balance of trade where export(X)
are added and imports(I) are subtracted.
Australia’s economy is led by the service
sector such as finance, education and tourism. yet its economic success in
recent years is due to export of mining minerals and agricultural products.
Other sectors include manufacturing and construction.
Per trading economics, GDP is an indicator of
the economic health of a country and measure of standard of living in a
country. The Gross Domestic Product in Australia was worth 1345.35 billion US
dollars in 2015. The GDP value of Australia represents 1.94 percent of the
rate (cash rate)
Cash rate is the interest rate charged by the
Reserve Bank of Australia(RBA) on the loans granted for commercial bank. It
also can be described as interbank loan. This allows the Reserve Bank of
Australia to adjust the interest rates in country’s economy. The Official Cash Rate
cannot be changed by transactions between commercial banks or institutions as
this does not bring change in money supply but only the locations of cash. Only
transfers between the RBA and other institution or bank can affect the cash
rate. From the table1 data above we can see the cash rate change over following
been a recession free country for more than 25 years. From the forecasts, it
could be guessed that the country would neither face recession nor an
expansion. But however, there are many ways the country could boost its
economy. With the initiatives mentioned, along with a strong macroeconomic
environment, it will provide Australia with the provision to achieve its
targets In the early years, the
interest rate was high around 7.5 to 17% but the growth rate decreased from
3.53%(1990) to 0.44%(1992), which suggests higher the cash rate the GDP growth
will be affected negatively. In other way, if the central bank increases interest
rate, bank and other business borrow less, invest less which will have negative
effect on production and employment resulting in lower GDP. Thus, RBA as a
regulator of monetary policy, to bring growth and balance in GDP it lowers its
interest rate to facilitate investments and GDP growth.
The unemployment rate is the share of the labor
force who are without job, expressed as a percentage. It generally changes
responding to change in economic conditions. When the economy of a country does
not have good shape and jobs are less or more people lose job, in this case unemployment
rate can rise higher but when there is economic growth more jobs and opportunities
are created, the unemployment rate falls.
From the study of above table1 data, we can
represent as a graph below:
As we can see from the graph, in the initial
year unemployment rate was 6.9 in 1990, where it increased to 10.9 in next two
years. But GDP growth rate decreased from 3.53 to 0.44% for same year. It
suggests that as the demand and consumer consumption or spending decreases
firms will produce less which results decrease in production, need of labor
force also decreases which makes rise in unemployment but decrease in economic
growth. In this situation, monetary policy need to be loosen decreasing the
interest rate where firms will be motivated to invest more, creating job
opportunities and growth in income will bring increase in consumer consumption.
Inflation rate refers to increase in the
Consumer Price Index (CPI), which is a weighted average of prices for different
goods. The set of goods that make up the index depends on which are considered
representative of a common consumption basket. Therefore, depending on the
country and the consumption habits of the majority of the population, the index
will comprise different goods. Some goods might record a drop in prices,
whereas others may increase, thus the overall value of the CPI will depend on
the weight of each of the goods with respect to the whole basket. Annual
inflation, refers to the percent change of the CPI compared to the same month
of the previous year.
From the above graph, we can see that the
increase in price index has linear function with the GDP growth. As the price
of the goods increase, the value of goods sold will be increased resulting in
higher value of GDP.
Exchange rate is simply the value of one
Australian dollar(AUD) in terms of other currency normally USD. Now, let’s
first talk about the lower exchange rate, when exchange rate is low for AUD,
the goods and services in Australia become cheaper for overseas consumer where
they will have high demand and our export will increase to fulfill that demand.
If the export increases it increases the GDP. But when we have strong exchange
rate, imports will be cheaper, we will import more goods which makes the GDP
lower as the domestically produced goods will have decreased demand.
Net exports is the value of goods and services
exported less the imports in certain period of time. As said above, if
Australian goods gets cheaper the foreign demand will increase where we need to
produce more, export will increase making growth in the GDP. Also, if we prefer
domestic products rather than imports, it will lower the imports making greater