REAL GDP IN AN ECONOMY

QUESTION

MAE102 Global Economy, Trimester 1, 2012

WRITTEN ASSIGNMENT.

Due Date: 14 May 2012

Word Limit: 1500 words.

Worth: 25% of total for unit

Collecteconomic data for three countries: Australia, China and Greece.The data is toobtainedfrom official sources as time series forthe key macroeconomic variables. These arereal GDP, real GDP per capita, annual real GDP growth, the unemployment rate, the interest rate, andtheinflation rate.  For Australia and Greece,also collect data series for government expenditure and taxes. The data are to be inannual format for the years starting from 1999-2000 up to and including 2010-2011 (or the most recent available).

1. Present the data above in tables for each variable. Present in charts the data for real GDP, real GDP per capita, annual real GDP growth, the unemployment rate, the interest rate andthe inflation rate, witheach variable in a separate chart.  Show one variable across the three countries in the same chart wherever possible.  Calculate the annual real interest rate and similarly present it in a chart including the three countries. Also in one chart for each of Australia and Greece, present its government expenditure, taxes and GDP. The charts must be correctly titled, labelled and sourced.                                               (8 marks)

1. Compare the variables in the charts for each country and comment about similarities and differences in the level and movement of the variables amongst the threecountries. Include a description of the budgetary positions forAustralia and Greece over the period.

(5 marks)

1. Based on the data you have presented, discuss how the GFC has influenced the economy for each country over the period.Discuss why the effects on each country may differ.                                                                                                                               (5 marks)

1. Make use of AE diagrams to analyse and contrast the macroeconomic behaviour of Greece and Australia. Discuss possible reasons for the differences.

(7 marks)

Up to 5 marks will be deducted for poor presentation including tables, charts and referencing.

Presentation and Referencing:

Answers should be in full sentences, which have been checked for grammar and spelling.

Data should be neatly presented and labelled in table and graph format, with sourcescorrectly documented at the foot. Tables and graphs should becorrectly titled and eachaxis on the graphs correctly labelled. Source of data should be acknowledged under eachtable and chart and fully documented using a reference list presented at the end of theassignment.

References, including electronic references (with date of access), need to be fully documented in a bibliography at the end of the assignment,so that they can be readily accessed by the reader. For more information on referencing see the LibraryData Collection Help Sheet, available in the Resources Folder in DSO. Check also theassignment learning module in DSOand http://www.deakin.edu.au/current-students/study-support/study-skills/handouts/authordate-harvard.php .

The first page of the assignment must include the name and student ID. On campus students must include the tutor’s name and tutorial time. All report pages must have a footer which includes the student’s ID and the page numbering e.g. page 4 of 8. The assignment should have standard left and right and top and bottom margins.

Some references, not exhaustive:

Unit materials and individual topics folders in dso.

Australian Bureau of Statistics, (ABS), available online at <www.abs.gov.au> The ABSprovides data on the Australian economy and a link on its home page toInternational Statistics.

Department of Foreign Affairs and Trade, (DFAT), Country Fact Sheet, available online atwww.dfat.gov.au.

Reserve Bank of Australia, (RBA), Alphabetical http://www.rba.gov.au/statistics/index.html accessed December 2010.

World Development Indicators: a data base that covers all countries and is available throughthe library. See Library Help Sheet in the Resources Folder on dso.

World Bank http://data.worldbank.org/ and http://www.worldbank.org/financialcrisis/

Australian Treasury http://www.treasury.gov.au/home.asp?ContentID=521

http://www.rba.gov.au/publications/smp/2011/feb/pdf/0211.pdf

http://www.treasury.gov.au/floodrebuild/content/default.asp

Make use of library resources.

Deakin University, Study Support, offered through the Division of Student Life website, ‘study skill’, ‘student resources’, ‘referencing andavoiding plagiarism’. http://www.deakin.edu.au/current-students/study-support/studyskills/handouts/authordateharvard.php

http://www.deakin.edu.au/current-students/study-support/study-skills/handouts/plagiarism.php

Please read carefully ‘ASSESSMENT’ and ‘ACADEMIC HONESTY AND MISCONDUCT’ intheUnit Guidebefore starting work on the assignment.

SUBMISSION:

Both a Hard Copy and an Electronic version of the assignment must be submitted with assignment attachment sheet with honesty declaration signed. (see assignment attachment sheet at the Assessment module in Content on the unit D2L site.)

On campus students:

Submit a hard copy with attachment sheet to the B&L Faculty Office assignment box no later than 5pm on Monday 14 May. The assignment box is located in the middle entrance to the building coming from building la. There is a small foyer area in between the first set of sliding doors and the next set of doors which can be accessed at all hours. Make sure you supply your tutor’s name, tute time and tute number on the front so that your assignment can be returned to you in class.

All students:

Submit an electronic copywith plagiarism declarationto DSOby 5pm on 14 May. An earlier time is preferable in order to avoid system overload at the last minute. This avoids system crash and the risk of late submission.

 SOLUTION

1)     Chart representation of the Macro Economic variables for Australia, Chins and Greece from 1999-2011 (with estimations).

REAL GROSS DOMESTIC PRODUCT:

REAL GROSS DOMESTIC PRODUCT PERCAPITA

     ANNUAL REAL GDP GROWTH

     UNEMPLOYEMENT RATE

     INTEREST RATE

     INFLATION RATE

     GOVERNMENT EXPENDITURE

2)     Above are the different charts presenting the different variables of Macro Economics, these variables are Real GDP, Real GDP Per capita, Annual real GDP growth, Unemployment rate, Interest rate and the inflation rate. If we check through the tabular values and the charts we consider the following comparisons of these variables in the three countries.

Real GDP: GDP for Australia are slowly going down from 4.30% to 2.60% in 2001-2002, these value gradually increase with little decimal changes from 2002-2003 to 2005-2006, the variations in the values is not constant it gradually increases and decreases and latter increases from 2.70% in 2010-2011 to 3.00% in 2011-2012, whereas the same values are gradually increasing for China till 2008-2009 and then fluctuate up to 10.30% and remain constant at 9.60%, but for Greece the fluctuation in the values is same as in Australia but it is in the year 2009-2010 that the change is effective where the values are negative.

Real GDP Per capita: Variations in the value of per capita income for Australia and China are similar with gradual increase in the value, whereas they differ for Greece the values fluctuate by decreasing and increasing frequently.

Annual real GDP growth: The annual real GDP growth values for Australia are constantly decreasing till year 2007-2008 where it increases and continues to decrease in the next years. These fluctuations are different when compared with China where the values gradually increase, and then from 2008-2009 they decrease and remain constant. The story of Greece is completely different where the fluctuations are more and from 2009-2012 is negative.

Unemployment Rate: The unemployment rate in Australia has gradually decreased and latter increased in the year 2009. The unemployment rate started in China from 2002-2003 and constantly decreased in decimal percentages till 4.00% in 2011-2012. Whereas the rate in Greece gradually increased, decreased, increased at one stage (2004-2005) and then decreased. From 2009-2010 there was a gradual increase till 2011-2012.

Interest Rate: The interest rate started with an increase from 6.80% to 8.05% later it stared decreasing for next two years and there was consistency in the rate till 2007-2008 where it started increasing and ending finally at 7.30%. For China the rate steadily increased and suddenly went down finally ending at 6.56%. The interest rate in Greece fluctuates a lot by increasing and decreasing, increasing and decreasing and stopping at 1.00% for the year 2011-2012.

Inflation Rate: The inflation rate increased in 2000-01, which latter decreased gradually but went high again in 2008-2009 and gradually decreased finally ending at 3.00%. In China it started with a negative and went high in 2007-2008 which ended with fluctuating increase of 4.2%. Greece on the other hand had fluctuations as every variable of increase and decrease with high value of 4.1% during 2008-2009, and end at 2.5% in 2011-12.

With the idea about the fluctuations in the economic variable we move further in understanding the budgetary position of Australia and Greece. The budgetary position of Australia as per the economic research note clearly shows the countries fiscal strength and also the peak in the net debt by 6% of GDP with a projected surplus for three years from the year 2010-11, The main part of its budget revolves around the tax collected from previously announced tax resources and tobacco sectors which helps the company sector by giving incentives to small industry and cutting down the company tax, in a way the country is in a developing positing as per the budget. Greece entered the Eurozone with a healthy public finance; however it rapidly slid down in deficit after entry and continued to be in deficit, the borrowing cost of Greece rose sharply in 2008 with GFC magnifying its poor fiscal position. The unprecedented effort to rescue their banking systems and respond to the sharp economic recession during the GFC have left their debt and deficit position in unsustainable territory.

3)     Influence of GFC on the economy of Australia, China and Greece is discussed as below. The effect of GFC on Australia started after its effect in US because many economists were of a view that Australia’s economy is de-coupled with the economy of US, the crisis started unfolding in Australia by triggering the liquidation of a number of hedge funds holding securities which in turn led to a further collapse in securities prices intensifying its effect on Australia. While the moves and regulation taken by the government around the world appear to have averted the systematic financial failure, concern remains about its impact on real economy. With tighter lending standards and week consumer and business confidence and decrease in demand for the Australian commodity, Australia is unlikely to escape from the phase of financial crisis. The GFC had a relatively bad impact on the economy of Greece, by reducing its fiscal position and increasing its borrowing cost, GFC magnified the poor economic position of Greece and it left the economy of that country in debt and deficit which the country can never sustain. Undoubtedly the impact of GFC the Global Financial Crises on Chinese economic effected China’s high export dependency. This high export dependency is due to the export promotion policy, but from macroeconomics end it is attributable to overcapacity caused by over investment (China’s response to the global financial crisis, 2010). The GFC had a relatively bad impact on the economy of Greece, by reducing its fiscal position and increasing its borrowing cost, GFC magnified the poor economic position of Greece and it left the economy of that country in debt and deficit which the country can never sustain.

Thus, it can be concluded that the global financial crises had a very bad impact on the macro economy of the specified three countries and many countries are trying the best mechanism to come out of the impact of these global financial crises.

REFERENCE:

• Economic Variable values of China: http://www.tradingeconomics.com/china/indicators
• Economic Variable values of Greece: http://www.tradingeconomics.com/greece/indicators
• Economic Variable values of Australia: http://www.tradingeconomics.com/australia/indicators
• Global Finance, Country Economic Reports & GDP Data; http://www.gfmag.com/gdp-data-country-reports.html#axzz1udT1jKUN
• Fixed Interest and Credit Research, Greece, 2010; https://www.cfsgam.com.au/uploadedFiles/CFSGAM/PdfFundFactsheets/100524%20Greece%20FIC.pdf
• The World Bank, Data GDP Per capita; http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?page=2
• Economic research note, 2010/11 Australian Budget: Better than all the best; https://www.cfsgam.com.au/uploadedFiles/CFSGAM/PdfResearch/100512%20Budget2010.pdf
• Yu Yongding, China’s response to the global financial crisis, 2010, EASTASIAFORUM, Economics, Politics and Public Policy in East Asia and the Pacific; http://www.eastasiaforum.org/2010/01/24/chinas-response-to-the-global-financial-crisis/

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