The Current Status of the Australian Economy :: AustralianEconomics Trade Cycle Essays

The Current Status of the Australian Economy Assignment 3 A Collect, organize, present and analyse a range of data which describes the current state of the Australian economy(with respect to the trade cycle). B Describe and analyse the monetary policy stance which has been adopted by the RBA over the past 2 years. How effective is monetary policy in achieving the policy objectives of the government? Introduction Part A =================== This report contains an informed and balanced analysis of a range of data which assists in depicting the current state of the Australian economy in relation to the trade cycle. Relevant Data For various reasons, economic activity fluctuates from year to year. Periods of rising activity, output and income are called booms and periods of slower activity are called a trough. Generally when real GDP is above 4 per cent p.a. it would be considered a boom year and when there are technically, two consecutive quarters of negative economic growth it would be considered a trough or a recession. In the short term the level of economic activity fluctuates. In some years, growth is fast and business conditions are booming. In other years, the level of activity is slow, so growth in output, income and employment is also less than average. These fluctuations are called the trade cycle. There are a number of economic indicators which are useful for determining what stage of the trade cycle the Australian economy is currently in, such as Gross domestic product, unemployment, inflation, interest rates, building approvals and home loan approval, just to name a few. Changes in Aggregate Demand Changes in the level of Aggregate Demand (AD) are critical determinants of trade cycle fluctuations. GDP is the sum of consumption, investment, government purchases and net exports. Y = C + I + G + NX The following table outlines these elements and influencing factors. Elements of GDP Major factors affecting this component Consumption (C) Disposable income (Yd); interest rates (r); expectations about the future; stock of wealth. Investment (I) Past levels of profit; expectations about the futre business conditions; interest rates (r) Government expenditure Determined in accordance with government policy Net exports Determined by the interplay of C & I conditions in other countries and Australia. Output and Unemployment As Gans, King and Stonecash state, â€Å"Changes in the economy’s output of goods and services are strongly correlated with changes in the economy’s utilization of its labour forces†. Generally as Gross Domestic Product declines then the rate of unemployment rises, basically as companies produce less goods and services, they require less staff or are not employing new members, thus the number of people