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This Macro Economics Assignment Help is a Analysis and Evaluation of Macroeconomic Performance Australia and USA.
There are lots of macroeconomic indicator to analyse the GDP growth rate of USA and Australia, but among them exchange rate, interest rate, amount of import and export, unemployment rates that are highlighted in the study. In this report the have to show the relation between all macro economic indicators and GDP growth rate not only that, this report also try to find out some measures for both the country USA and Australia. In this analysis, try to predict the future threats and growth for both the country USA and Australia on the basis of the given macroeconomic indicators and with the help of the data.
1. Obtaining data of macroeconomic indicators
2. Tables and Graph of the obtaining data
3:a. Relationship with real GDP and other macroeconomic indicators in Australia and USA
In case of any country, macroeconomic indicators are related with that country’s GDP growth rate (Desai, 2013, p.56). As GDP is the combination of exchange rate, interest rate, unemployment rate, export and import of any country. It is also true for in case of, USA and Australia. When the amount of export increases in USA and Australia then there will be an increase in the GDP this will lead to the increase in the GDP growth rate but if there is an increase in the import then there will be a decrease in the total GDP and this will lead to the decrease in the GDP growth rate. There is a negative relationship between GDP growth rate and unemployment rate, as when the percentage of unemployment rate increases then there will be decrease in the GDP growth rate and when there is a decrease in the unemployment rate then there will be an increase in the GDP growth rate. In the same way, exchange rate has a positive relationship with the GDP growth rate. As, when a country’s exchange rate increases that mean there is an improvement in the terms of trade of that country, it implies that the country become more powerful and it has full command over the trade, this will lead to an increase in the GDP growth of that country (Jorgenson et al. 2016, p.34).
If there is an increase in the real interest rate of a country then there will be a decrease in the GDP growth rate in that country, as there exist a negative relationship between interest rate and GDP growth rate. When there is an increase in interest rate then there will be a decrease in the investment of that country. When there is an increase in the interest rate, then the people will lose the interest in case of investment in production and they will be interested to invest money in the bank. As a result of this money supply of the economy will decrease, reserve bank of any country can take this measure to decrease the money supply when there is an inflationary situation on the country. As there is a negative relationship between inflation and interest rate, when there is an increase in the interest rate then the people holds less money to spend and this will lead to an decrease in the inflation rate. Lastly, there exist a negative relationship between CPI and GDP growth rate, as an increase in CPI means there is an increase in the price level of an economy and this will lead to an inflationary situation in the economy, so the increase in the CPI implies a decrease in the GDP growth rate (Warburton, 2013, p.45).
b. Relation between interest rate, inflation and unemployment
Among all macroeconomic variable interest rate, inflation and unemployment has a strong relation and they have the strong influence in a country’s economic growth. Australia and USA will not be the exception of this relationship, in both the country’s economy there exist the relationship between interest rate, inflation and unemployment. In general, when there is an increase in the interest rate, there will be a sure decrease in the investment of the country and a result of this there will be decrease in the money supply. As there is a decrease in the money supply then there will be a sharp decrease in the inflation rate of the country, this will lead to a decrease in price level of the economy, and there will a shortage in the production. As the suppliers are losing the interest to produce more, because they cannot sell the product at higher price. In this context, there will be a decrease in the labour employment because the suppliers are not producing more so they also not hiring the labour for the production not only that, the labour can lose their job if the price level decrease more rapidly. If this situation last for long time then deflationary situation can arise (Coale and Hoover, 2015, p.78).
When there is a decrease in the interest rate then there will be hike in the investment in the economy and the producer will produce more and they will be interested to invest more in the production. There will a increase in the money supply in the economy and the price level of the output will be rise, this will help the producer to earn extra profit. As the producer will produce more, then there will be an increase in the labour demand and there will be more employment in the economy. This situation may lead to an inflationary situation in the economy. The relation between unemployment and inflation can be described by the Philip’s curve. The curve explains that the changes in the level of unemployment have a direct effect on the inflation of an economy. As, increase in the labour demand may be a cause of GDP growth, as a result of this there will be a fall in the unemployment. In this context, there will be a situation in the economy where, the labour will have more bargaining power to get higher nominal wages. This will lead to an increase in the labour cost for the firm and the firm will charge higher price from the consumers to pass the burden of the higher labour cost. So, from the analysis it is clear that higher inflation and defilation both are harmful for US and Australia, but still mild inflation will be required for the GDP growth for both the countries (Clawson, 2013, p.54).
c. Correlation of macroeconomic indicators between Australia and USA
As, there exist a relation between the macroeconomic indicator and GDP growth for all the country, and the macroeconomic indicators are used to describe the condition of the country. In this context, it can be said that the macroeconomic indicators are those variable of the country by which comparison between two countries can be possible. As in this case, the macroeconomic indicators are same for both the country USA and Australia, so it will be easy to compare and find the correlation between the macroeconomic indicators of Australia and USA (Bass and Dalal-Clayton, 2012, p.45).
Among all the macroeconomic indicators of USA and Australia, it will be easy to show the correlation between two country’s exchange rate, amount of import and export. As, both the countries are engaged in the trade and they have different exchange rate for their trade. It is quite impossible for a country to independent in case of production of goods, they can specialise themselves in some particular good’s production. So, in case of Australia imports electrical machinery, optic and medical instruments, aircraft and agricultural product from USA and in case of US, uranium, titanium, wine, beer, precious stones and metals are imported from Australia. In the year 2013, US was in fourth position as Australia's export partner and the volume of export was 16.5 US$ billion. Australia was in the fourteenth position as the US’s export partner and the volume of export was 24.7 US$ billions. In this context, Us is the third largest trading partner and second largest source of imports of Australia and Australia is the twenty sixth largest trading partner and ninth largest source of agricultural imports of US (McLean, 2012, p.58).
In the modern economy, the exchange rate is determined by the open market operation, as developed country as if USA must have the higher exchange rate then the small country like Australia. In this context, US must have the command over the trade with Australia. Australia is much dependent on US but still USA has the dependency on Australia in the most important sector agriculture. As, the exchange rate for both the country is 1 US dollar= 1.33 Australian dollar, here Australia has to give more Australian dollar in comparison with US. The exchange rate may be changed as the exchange rate is determined by the open market operation and there is no fixed exchange rate for any country. In this case, as the US has higher exchange rate than Australia, so US has the better terms of trade in case of trade with Australia. However, both the country is interdependent but still; they have the different exchange rate (Butlin, 2013, p.25).
d. Effectiveness of monetary policy
According to the macroeconomic indicators and data analysis, it is clear that the US has the effective monetary policy, as the labour market improved during the second half of the year 2015, and labour market move towards the maximum employment in this year. The economic activity expanded in the last year, and surprisingly there was a solid gain in consumer spending and Real GDP. The growth in GDP was supported by the effective monetary policy, total gains in GDP have occurred by the sluggish growth in US dollar. The financial condition of US was quite supportive for the economic growth of the USA. The interest rate and other macroeconomic variable have continued to move down since from the middle of the year 2014, this will help in the GDP growth of the US. In many economic models, inflation expectations are very much significant part to calculate the actual inflation, so to calculate the inflation of US there should be a perfect measure still there is no such perfect measure to calculate the stable inflation rate of USA. For most part, survey based part was quite stable to calculate the inflation rate in US (Gould, 2013, p.35).
As, export increased moderately in the second half of the year 2014 and the growth rate of import also decrease in this year. Still there was a slight growth in the real GDP because of the net increase in the export and import.
In the past few years, capital and liquidity positions in the banking sector in USA have going to increase continuously, which leads to an improvement in the GDP growth rate. However, the federal bank of US took some financial measure to ensure the GDP growth in US. The measures are: the bank finalised several rules to enhance the capital and liquidity position of large bank organisation, a final rule was adopted to modify the supplementary leverage ratio, there was another final rule was issued to change the liquidity coverage ratio and finally, a rule was introduced to prohibit in case of combining two financial institution. In the year, 2015, the emerging market economy improved a little bit, but still the performance varies across the economies (Cavusgil et al. 2014, p.87).
e. Prediction of macroeconomic outlook in Australia and USA
In case of Australia, the GDP growth rate will expand 0.5% in the coming year and there will be a downwardly revised of 1.0 percent growth, as it may be the weakest growth since the second quarter of the year 2016. The net trade will weight it down while investment will be flat and final consumption will be remained steady. In the second quarter of the year 2016, final consumption expenditure will grow by 0.8 percent and by adding 0.6 percentage points to GDP growth. There will be an increase in the household spending and it will be by 1.9 percent. In the coming year gross fixed capital formation will be flat and private investment will be decreased by 3.4 percent, which will driven by a 12.4 percent drop in the non-dwelling construction. But there will be a rise in public investment by 15.5 percent because of 21 percent increase in state and local general government. In case of export of goods and services will go up by 1.3 percent while there will be an increase in the imports of goods and services by 2.7 percent. As a result of this, net export will be detracted 0.2 percentage points from GDP growth.
In case of US, GDP will rise by 1.2 percent as the report will raise the risk to the outlook at a time and the federal bank of US will go for the sustained improvement in the financial sector. But the consumer will be resilient and the businesses will be cautious and they will cut their consumption and investment because of the weak global market. As the corporate spending on equipment, structure and intellectual property will be decreased by 2.2 percent after the 3.4 percent fall in the first quarter of the coming year. Inventories and the trade gap will be two most volatile elements in GDP calculations In order to get a better idea about the demand in USA, the economists will look at final sales of domestic purchasers, or GDP excluding inventories and net exports. These all measure will increase 2.1 percent in the GDP growth after the fall by 1.2 percent in the last quarter in the coming year. Government spending may shrank in the last quarter of the coming year, there will be a decrease by 0.9 percent, the GDP report will show the unlimited price pressure. A measure of inflation like consumer spending, energy costs will increase by 2.1 percent in the first quarter of the coming year (Di Marco, 2014, p.45).
In this report, the forecast of macroeconomic outlook is developed on the basis of the data analysis of macroeconomic variable of both the countries.
As the macroeconomic indicators are helpful in order to analyse the GDP growth rate for both the country and it will be helpful to assess the economic condition for both the countries. Still there are many other macroeconomic indicators, which are also helpful to measure the economic growth for the countries, and those indicators are helpful in order to get a proper measure of economic growth. In this study, it is clear that US is much more developed than Australia, as the growth rate of Australia is lower than the growth rate of US. But still here, the size of the country will play a significant role.
Bass, S. and Dalal-Clayton, B., (2012). Sustainable development strategies: a resource book. Abbingdon: Routledge.
Butlin, N.G., (2013). Investment in Australian economic development, 1861-1900. England: Cambridge University Press.
Cavusgil, S.T., Knight, G., Riesenberger, J.R., Rammal, H.G. and Rose, E.L., (2014). International business. Australia: Pearson Australia.
Clawson, M., (2013). Suburban land conversion in the United States: an economic and governmental process. Abbingdon: Routledge.
Coale, A.J. and Hoover, E.M., (2015). Population growth and economic development. New Jersey: Princeton University Press.
Desai, R., (2013). Geopolitical Economy: After US Hegemony, Globalization and Empire (The Future of World Capitalism). London: Pluto Press.