MCROO1 Economics Assignment Sample
The Covid pandemic has had a huge effect on major economies across the world, with the Australian economy being no exception. In the last five years, the GDP rate of Australia was varying between 2.2% to 2.3% annually. However, because of Covid, the economy plunged to a negative rate of -0.3% due to the imposition of lockdown by the government and the stagnation of trade opportunities (World Bank, 2021). Despite these issues, the economy is still expected to grow by 4.5% in 2022. The reason for the same is believed to be because of successful vaccination drives, high consumer spending which was supported by high saving rate, fiscal “stimulus” and the growing prices in the real estate market.
Figure 1: Annual GDP Growth
(Source: World Bank)
The key economic variables that help assess the position of the economy are mainly the “Balance of Payments of the country”, “the Case of Unemployment”, “Inflation and Economic growth”. Each of these factors has a huge effect when it comes to the GDP rate of growth in the country. The Balance of Payments helps in assessing the transactions made from the net exports in a country, whereas the rate of unemployment helps in determining the ability to provide employment opportunities to drive economic growth (Heath, 2021). Inflation affects a wide variety of indicators such as consumer spending and investment. Lastly, Economic growth is determined after a thorough assessment and analysis of all the above three factors.
The AD-AS model helps in providing an understanding of the business cycles which further helps in assessing the economic growth of the country. A closer look at the economic situation of Australia can be seen that the economy is suffering from recessionary pressure in the current scenario. Though the country experienced an increase of 0.7% in its GDP yet in the terms of “per capita” the economy just grew by 0.4% by the end of June 2021 in the second quarter (The Guardian, 2021). Currently, the authorities are struggling to control the sudden spread of the Delta variant of Covid which may lead to contractions in the net exports. The unemployment scenario of the country is in a poor state, with inflation being at 2.5% from its significant decline to 0.89% in 2020 (Trading Economics, 2021). Hence, it can be stated that despite the predictions regarding 2022, the economy is visibly suffering from the recession which has caused the “AD-AS” curve to shift to the left.
Figure 2: Shift of the AD-AS Curve
(Source: Inspired by Irvine, 2021)
The indicators are as follows,
- “Rate of Inflation”-Has increased from 0.89% to 2.5% (Neill, 2021)
- “Unemployment rate”-Has increased from 5.6% in 2019 to 6.49% in 2020 (Trading Economics, 2021)
- “Interest rate”-Fell from an average 3.98% to 0.10% in 2021 (Cole, 2021)
- “GDP” Growth rate-2.2% in 2019 to -0.3% in 2020 (World Bank, 2021).
Thus, it can be concluded that the Australian economy is again suffering from recessionary pressure following the fall in the performance of its net exports and a looming lockdown owing to the spread of the delta variant. Therefore, despite the issues, because of rising prices in the real estate market and a strong fiscal stimulus, the country will indeed be able to grow by 4.5% in 2022.
World Bank., (2021), GDP growth (annual %) – Australia Retrieved on 25th October 2021 from, https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU
Heath, M., (2021), Australia Economy Could Slide Back Into Recession, Citi, AMP Say, Retrieved on 25th October 2021 from https://www.bloomberg.com/news/articles/2021-08-30/australia-economy-could-slide-back-into-recession-citi-amp-say
Cole, W., (2021), Australian economy likely already slowing in Q2 before Delta downturn, Retrieved on 25th October 2021 from https://www.reuters.com/world/asia-pacific/australian-economy-likely-already-slowing-q2-before-delta-downturn-2021-08-30/
Irvine, J., (2021), Spoiler alert: we’re in a recession, even if it’s not ‘official’, Retrieved on 25th October 2021 from https://www.smh.com.au/business/the-economy/spoiler-alert-we-re-in-a-recession-even-if-it-s-not-official-20210830-p58n7s.html
The Guardian., (2021), Australia avoids recession for now but economic growth already slowing before Delta hit, Retrieved on 25th October 2021 from https://www.theguardian.com/australia-news/2021/sep/01/australia-avoids-recession-for-now-but-economic-growth-already-slowing-before-delta-hit
Neill, AO., (2021), Inflation rate in Australia 2026*, Retrieved on 25th October 2021 from https://www.statista.com/statistics/271845/inflation-rate-in-australia/
Trading Economics., (2021), Australia Unemployment Rate, Retrieved on 25th October 2021 from https://tradingeconomics.com/australia/unemployment-rate
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