Economics For Business : Modeling Assessment Answer

Answer:

Introduction  

This study has been aimed to identify the concept of economics for business. In this context, this study has tried to highlight five different concepts under the shade of Australian background. Therefore, firstly, this study has focused to the rate of GDP of Australia. In addition, the rate of GDP of last 2 to5 years of Australia has been discussed. The influential factors, which influence the rate of Australian GDP have also been discussed in this section. On the other hand, this study is also helpful to estimate the unemployment rate of Australia. This unemployment rate is also highlighted the economic position and the growth of Australia. The issues and the governmental policy of Australia regarding the unemployment rate have been mentioned. Moreover, this study is beneficial to understand the unemployment rate of different states of Australia and this is assumed to be helpful to understand the economic position of these states within the country (Anderson & Wittwer, 2013). On the other hand, this essay is helpful to measure the inflation rate of Australia. In this purpose, this study has tried to establish the inflation rate of Germany, UK, USA, China, India, Japan, Korea, Indonesia in order to compare the economic position and the growth of these countries as well as Australia. In this connection, the causes of inflation within the countries have been also mentioned. Next, this study has aimed to the Australia’s monetary policy during last 5 years. Lastly, this study has tried to demonstrate the economic growth of Australia and also discuss the economic growth of other developing country such as China in order to develop the comparison. In this occasion, this study has tried to identify the effects of this economic position on the society (Arnone & Romelli, 2013).

Comparison of Australian GDP with other economy from 2011 to 2015 and the factors, which affect the Australian GDP

This section is helpful to estimate the Australian GDP rate with the other economy such as China’s GDP rate has been discussed. In this connection, this study has tried to accumulate last 5 years GDP rate for both Australia and for China. According to Board  (2012), the GDP rate of Australia has been rising with the increase of time. This rate has been increasing significantly from the year of 2011 to the year of 2012. After that, the GDP rate has been decreasing over time. In addition, it can be observed that the GDP rate was the highest in the year of 2012 and the rate was 3.63%. On the contrary, this rate was lowest in the year of 2015 and the rate was 2.26%.


Australia's GDP rate of last 5 years

 

 

 

Year

GDP rate (in %)

 

2011

2.38

 

2012

3.63

 

2013

2.44

 

2014

2.5

 

2015

2.26

 

In case of China’s GDP rate, it can be observed that this rate has been decreasing with the rise in time, more specifically from the year of 2011 to 2015. In 2011, the rate was 9.48% and at the end of the 2015, this GDP rate was 6.9%. The following table has developed the last five years GDP rate of China.

Year

GDP rate (in %)

2011

9.48

2012

7.75

2013

7.68

2014

7.27

2015

6.9

Comparing the GDP rates of last five years of two mentioned countries, (Eichengreen, Park & Shin (2013) mentioned that Australia’s GDP rate was lower compared to China. Although the GDP rate has been decreasing over time in case of both the countries, China is at better position compared to Australia.

On the other hand, as per the statement of Butlin (2013), Australia’s average GDP rate is 3.2% based on the average of 25 years. In this concern, it can be assumed that aggregate demand of a country has made an impact on the country’s GDP rate. In this connection, it can be stated that lower rate of interest rate reflects to borrow at cheaper rate. Therefore, due to this reason GDP growth rate of Australia has been decreasing. On the other hand, the price of the houses in Australia has been increasing with the rise in time; hence, it leads to make a direct wealth effect. On the contrary, the real wages of the individual has been decreasing in Australia, therefore, the real income also decreased. As a result, the GDP rate has been falling. Moreover, Cecchetti & Kharroubi (2012) opined that inventories have been significantly stock, which they have been produced, however, these stocks have not sold. Since, the past five years, these inventories lead to reduce the GDP growth rate of Australia. The growth rate of mining gross valuation has been rising within the country, the GDP rate has been seasonally decreasing. Again, in case of Australian dollar evaluation, the export of the goods and the services become costlier whereas rate of imports are getting cheaper. Therefore, this would reflect the fall in the demand of the Australian goods and the services. This appreciation would leads to the inflation rate and the GDP rate has been decreased.

Discuss the unemployment rate, types, issues and the governmental policy of Australia

From the above analysis, it can be observed that the rate of GDP has been decreasing in Australia with the rise in time from 2011 to 2015. This also has an impact on the rate of unemployment in Australia. According to Egert (2015), it can be predicted that the rate of unemployment may be increased in Australia. In this connection, it can be found that the rate of unemployment has been increased by the rate of 5.8% as per the prediction. On the contrary, as per the Australian Bureau of Statistics, it can be observed that the monthly employment rate has been increasing. In July, 2016, the employment has been raised by 100 persons. In the month of June, the number of employment was 11800 whereas in July, the number was 11955. As a result, Eichengreen, Park & Shin (2012) mentioned that if this trend has been maintained, then the economy will be at better position from the current situation. In addition, smooth trend series can be easily maintained by the volatility of the behaviour of the labour market.  

In addition, in order to discuss the role of Australian government for reducing the unemployment rate of Australia, the government can lowering down the rate of interest, which can enhance the aggregate demand of Australia. Therefore, the unemployment can be reduced. On the other hand, with cutting down the tax rates, the fiscal policy as well as the aggregate demand will be improved. As a result, the unemployment rate in Australia will also be decreased. Therefore, the employment will be significantly increased. According to Eichengreen, Park & Shin (2013), labour market of Australia is required to flexible.

Discuss the unemployment rate in different states of Australia

In this section, the unemployment rates of different states of Australia have been discussed. The states are such as New South Wales, Western Australia, Tasmania, Queensland and the South Australia. In this context, it can be observed that the unemployment rate in New South Australia is 5.2% in 2016. The unemployment rate in Western Australia is 5.7%. On the other hand, the unemployment rate in Tasmania is 7.6% and in Queensland is 6.4%. Moreover, in South Australia, the rate is 6.9%. Comparing all of the unemployment rates of these states of Australia, it can be observed that the rate is lower in New South Australia and the rate is higher in Tasmania. Hence, Elsby, Hobijn & Åžahin (2013) cited that the wage growth rate of Tasmania has been decreased. Therefore, it can be concluded that demand for labour is lower compared to the supply of labour. More precisely, the higher unemployment rate has an immediate impact in the economy is lowering down the employment rate. As a result, the higher unemployment rate reflects the lowering down the GDP growth rate. According to Gerlach & Tillmann (2012), the exchange rate will also be decreased.  

Compare the inflation rate of Australia with the different countries

As per the current information, it can be observed that the inflation rate in Australia is 1%. On the other hand, the inflation rate in Germany is 0.4%, in UK the rate is 0.6%, in USA the rate is 0.8%, in China this rate is 1.3%, the rate in India is 6.07%, in Japan the rate is -0.4%, in Korea the rate is 0.4% and in Indonesia, the rate is 2.79%. After the observation, it can be mentioned that the inflation rate is highest in Indonesia and it is lowest in Korea and Germany among the above mentioned countries. On the contrary, Jaramillo & Cottarelli (2012) argued that in the country like Japan, the inflation rate is negative. Therefore, there is a deflationary situation within the economy.

In order o discuss the reason for higher inflationary rate, it can be mentioned that with the rise of the price of goods and services, the rate of inflation of an economy has been increased. On the other hand, when the demand for the products is higher but the supply is lower, then it can be stated that the inflation will be increased. This concept can be analysed with the help of the demand-pull theory. With this theory, Kilian & Hicks (2013) added that this situation occurs due to the overpopulation rate. On the other hand, if the manufacturing cost of the products increase, then it can be predicted that inflation will be higher, this can be explained by the cost-push inflationary theory. As a result, the cost of the employees also increase and the monetary policy will also alter. Moreover, rise in the price reflects to increase the cost of production. Nevertheless, Kremer, Bick & Nautz (2013) criticised that deflationary situation refers that lower performance of the economy. In this connection, it can be stated that Japan has been suffering from lower rate of growth. In addition, deflationary situation leads to the rise of the real valuation of debt. On the other hand, the disposable income of the individuals will also decrease as well.

In the words of Kumar, Webber & Perry (2012), higher inflation rate leads to the growth of the economy. With the rise in the price, it reflects to the higher production cost and the employment of the country. Therefore, it can be concluded that inflation can leads to boost up an economy. On the contrary, Lavoie & Stockhammer (2013) argued that higher inflation rate leads to the higher interest rate within the country. This higher interest rate in turn reflects the larger burden on the amount of debt. Furthermore, higher inflation leads to the country to be uncompetitive within the global markets. The situation has occurred due to the depreciation of the currency. As a result, decrease in the exports refers the further pressure of the foreign exchange reserves in the country’s economy.

In the points of Mumtaz & Surico (2012), if the higher inflation rate of a country cannot be controlled, then the existing inflationary situation can be converted into the hyperinflationary situation. This is not favourable to the economy. As a result, the breakdown of the economy will be occurred.   

Discuss the monetary policy of Australia from 2011 to 2015 and the impact on the society

As per the statement of Panizza & Presbitero (2013), the monetary policy of Australia of last 5 years can be determined by the value of the cash rate. Cash rate refers the rate of interest in the overnight money market. The cash rate of the last five years can be represented with the help of the following table:

Year

Cash rate (in %)

2011

4.75

2012

3.5

2013

3

2014

2.5

2015

2

The above table has been depicted that the cash rate has been decreasing over time in Australia. It can be observed that the rate was higher in the year of 2011 and the rate was 4.75%. Again, the rate was lower in the year of  2015 and the rate was 2%. Therefore, it can be concluded that lowering interest rate will be helpful to expand the country’s economy.  According to Pescatori, Sandri & Simon (2014), monetary policy of a country can control and state that how the money can be circulated as well as the cost of borrowing of money, more specifically it is known as the rate of interest. Based on the above rate of interest, it can be observed that this rate reflects the lower borrowing rate. This in turn motivate the spending as well as the investment. In addition, this in turn reflects to enhance the aggregate demand as well as the growth of the economy. Therefore, it can be stated that this increase in the aggregate demand will improve the pressure, which arise due to the inflation.

Moreover, Rapetti, Skott & Razmi (2012) opined that lower rate of interest rate aim to the lower return from the saving. The lower rate of incentive of saving will focus to motivate the customer’s spending compared to hold money in the account. In addition, lower interest rate will reduce the repayment of the monthly mortgages. This in turn is helpful to earn higher disposable incomes. As a result, the consumer will also increase in Australia. On the other hand, lower rate of interest is beneficial to purchase assets. As a result, Anderson & Wittwer (2013) mentioned that the wealth of the individual will rise effectively. Hence, rise in the wealth will encourage and improve the consumer spending. Furthermore, the lowering of interest rate has a positive impact on the society. Lower interest rate leads to the lowering down of exchange rate and this in turn aim to the Australian exports highly competitive and make the import highly costlier. Therefore, the aggregate demand will be effectively increased.

Discuss the economic growth of Australia and compare it with the other developing country

According to Arnone & Romelli (2013), the growth rate of Australia in 2015 was 2.26%. In this connection, it can be stated that the developing country such as China’s growth rate in 2015 was 6.9%. From this analysis, it can be concluded that China is at better position compared to Australia. In this context, it can be demonstrated that due to the increase in the inflation rate, the growth rate has been increased in China. Therefore, previously, it can be observed that the inflation rate in China is higher compared to Australia as China’s rate of inflation is 1.3% and Australia’s rate of inflation is 1% in the year of 2015 (Weale et al., 2015). Moreover, it can be concluded that higher the rate of growth, greater will be the per capita income. As a result, the national income will be fruitfully increased. In this purpose, Board (2012) highlighted that the national income is higher in China compared to Australia. On the other hand, the labour productivity and the physical capital will be increased. Hence, the socio real per capita growth within the economy will be occurred.

Discuss the economic growth of the country during last 5 years and the impact on the society

Australia's GDP rate of last 5 years

 

 

 

Year

GDP rate (in %)

 

2011

2.38

 

2012

3.63

 

2013

2.44

 

2014

2.5

 

2015

2.26

 

The above table shows the growth rate of last five years of Australia. It has been decreased over time. Therefore, in this purpose, this section has tried to demonstrate the effect of this growth rate in the society. Therefore, based on this outcome, Butlin (2013) mentioned that greater GDP growth rate aimed to the greater position of the economy. Nonetheless, as the growth rate of Australia has been decreasing, therefore, it can be concluded that the inflation rate of the country is not so high. Therefore, it can be stated that the country’s investment will not discourage. Therefore, this will effectively lead to the stable economy. The firms within the country will also interest to take risks and henceforth, they will invest (Shahiduzzaman & Alam, 2012).

On the contrary, it can be assumed that reduction in the growth rate may leads to the economy to experience the deflationary situation or the negative inflationary situation. As a result, in this case, the consumers will reluctant to spend money. In this purpose, Cecchetti & Kharroubi (2012) mentioned that the future prices of the products will be lower and the deflation will be increased with the rise of time. Moreover, the amount of debt will in turn increase. The disposable income of the residents of Australia will massively decrease, which reflect to reduce the national income of the country as mentioned by Elsby, Hobijn & Åžahin (2013)  

Conclusion

The overall study has been developed on the concept of economics for business. In this purpose, this study has tried to establish the last five years of GDP rate of Australia, which is helpful to identify and understand the economic performance of Australia. In addition, in his purpose, this essay is also beneficial to recognise the economic performance of China by estimating the GDP rate of last five years of this country. This study has also discussed the unemployment rate of Australia, which is 5.8% in the year of 2016. Moreover, after analysing the study, it can be stated that unemployment rate is depend upon the GDP rate of the country. On the other hand, the unemployment rates of different rates of Australia have been mentioned in his essay. Instead of this, As the GDP rate of Australia has been decreasing over time; therefore, the unemployment rate is higher in this country. After that, this study has tried to accumulate the inflation rate of Australia and made a comparison with the other countries such as Germany, UK, USA, Japan, Korea etc. In this connection, several governmental policy and the advantage of inflationary situation has been discussed. Lastly, this study is seemed to be beneficial as this study also tried to highlight the cash rate of last 5 years of Australia has been evaluated, which are necessary to identify the monetary policy of the country.

References

Anderson, K., & Wittwer, G. (2013). Modeling global wine markets to 2018: Exchange rates, taste changes, and China's import growth. Journal of Wine Economics, 8(02), 131-158.

Arnone, M., & Romelli, D. (2013). Dynamic central bank independence indices and inflation rate: A new empirical exploration. Journal of Financial Stability, 9(3), 385-398.

Board, A. S. I. (2012). Social inclusion in Australia: How Australia is faring. Canberra: Department of Prime Minister and Cabinet.

Butlin, N. G. (2013). Investment in Australian economic development, 1861-1900. Cambridge University Press.

Cecchetti, S. G., & Kharroubi, E. (2012). Reassessing the impact of finance on growth.

Egert, B. (2015). Public debt, economic growth and nonlinear effects: myth or reality?. Journal of Macroeconomics, 43, 226-238.

Eichengreen, B., Park, D., & Shin, K. (2012). When Fast-Growing Economies Slow Down: International Evidence and Implications for China∗.Asian Economic Papers, 11(1), 42-87.

Eichengreen, B., Park, D., & Shin, K. (2013). Growth slowdowns redux: New evidence on the middle-income trap (No. w18673). National bureau of economic research.

Elsby, M. W., Hobijn, B., & Åžahin, A. (2013). Unemployment dynamics in the OECD. Review of Economics and Statistics, 95(2), 530-548.

Gerlach, S., & Tillmann, P. (2012). Inflation targeting and inflation persistence in Asia–Pacific. Journal of Asian Economics, 23(4), 360-373.

Jaramillo, L., & Cottarelli, M. C. (2012). Walking hand in hand: fiscal policy and growth in advanced economies (No. 12-137). International Monetary Fund.

Kilian, L., & Hicks, B. (2013). Did unexpectedly strong economic growth cause the oil price shock of 2003–2008?. Journal of Forecasting, 32(5), 385-394.

Kremer, S., Bick, A., & Nautz, D. (2013). Inflation and growth: new evidence from a dynamic panel threshold analysis. Empirical Economics, 44(2), 861-878.

Kumar, S., Webber, D. J., & Perry, G. (2012). Real wages, inflation and labour productivity in Australia. Applied Economics, 44(23), 2945-2954.

Lavoie, M., & Stockhammer, E. (Eds.). (2013). Wage-led Growth: An equitable strategy for economic recovery. Springer.

Mumtaz, H., & Surico, P. (2012). Evolving international inflation dynamics: world and country‐specific factors. Journal of the European Economic Association, 10(4), 716-734.

Panizza, U., & Presbitero, A. F. (2013). Public debt and economic growth in advanced economies: A survey. Swiss Journal of Economics and Statistics,149(2), 175-204.

Pescatori, A., Sandri, D., & Simon, J. (2014). Debt and growth: is there a magic threshold? (No. 14-34). International Monetary Fund.

Rapetti, M., Skott, P., & Razmi, A. (2012). The real exchange rate and economic growth: are developing countries different?. International Review of Applied Economics, 26(6), 735-753.

Shahiduzzaman, M., & Alam, K. (2012). Cointegration and causal relationships between energy consumption and output: Assessing the evidence from Australia. Energy Economics, 34(6), 2182-2188.

Svensson, L. E. (2015). The possible unemployment cost of average inflation below a credible target. American Economic Journal: Macroeconomics, 7(1), 258-296.

Szirmai, A. (2012). Industrialisation as an engine of growth in developing countries, 1950–2005. Structural Change and Economic Dynamics, 23(4), 406-420.

Weale, M., Blake, A., Christodoulakis, N., Meade, J. E., & Vines, D. (2015).Macroeconomic Policy: inflation, wealth and the exchange rate (Vol. 8). Routledge.

Willard, L. B. (2012). Does inflation targeting matter? A reassessment.Applied Economics, 44(17), 2231-2244.

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