The Economy of Australia and the Federal Government Management of the Economy - Case Study Example

Name: Tutor: Subject: Date: Table of Contents Abstract 2 Introduction 2 The economic indicators 2 Economic growth 2 Unemployment 4 Inflation 4 Trade 5 Fiscal and monetary policy 5 Conclusion 7 Works cited 7 Abstract This paper is exploring the current state of the economy of Australia and the federal government management of the economy. The Australian economy has been examined using four economic indicators that can include economic growth, unemployment, inflation, and trade. Besides, the economic policies that have to be adopted by the federal government in the process ensuring economic sustainability are explored. These policies that have been discussed can include monetary and fiscal policies. Lastly, recommendations have been provided concerning the policies for the federal government to ensure economic sustainability. Introduction The economy of Australia has grown by around 0.5% due to a decrease in net trade and flat investment in the country. The economy of Australia is dominated by the service sector where the major success of the Australian economy can be attributed to the mineral resources and the developed agricultural sector. The service sector in Australia accounts for around 65%, mining 13.5%, manufacturing accounting for around 11%, agriculture around 2% and construction around 9.5% (Adams, 559). Based on this statistics, it is clear that the service industry has been reasonable for the growth in the economy of Australia. The growth of the economic growth of Australia can be associated with the management policies formulated by the federal government. The economic indicators Economic growth Australia has been experiencing economic growth due to the quality monetary and fiscal policies that have been adopted by the federal government in ensuring its economic stability. In ten years’ time before the recession that started from 1999 to 2008, the Gross Domestic Profit (GDP) of Australia accelerated with an average of 3.4% per year (Dunt, Emily and Ian, 330). In the year 2009, economic growth declined to 1.6% as a result of financial challenges globally. Though 2009 was the Australian’s worst year regarding economy since it was recessed in the year 1991, there was great resilience economically to the global crisis. Australia is among few countries that recorded a positive development in 2009. The economy of Australia has improved its performance with an average of 2.7% in GDP growth from 2010 to 2013. The demand increase for the raw commodities since the early 2000 has led to the strong rise of the Australian economy. In consideration with the trade terms, an increase in households’ purchasing power and commodity prices has boomed mining investment thus driving the growth of Australia within the last ten years at a high rate (Lenzen, 20). Expansion of iron and coal production capacity has created a strong positive impact on the Australia’s export to the Asian market. Australia’s annual GDP data are released in November in each year whereas quarterly readings of GDP in beginning of March, June, September, and December. The bureau of statistics of Australia calculates GDP using three methods: the expenditure, production, and the income approaches. The expenditure approach aims in calculating the expenditure final consumption of goods and services. The production approach helps in determining added value of every producer. It involves the difference between the output and intermediate consumption, the products taxes and subsidies on products (Dungey, Mardi and Adrian, 330). Income approach determines economy’s income as the sum of employees’ compensation, the surplus in operating gross, a mixed income of gross and taxes less production and import subsidies. GDP growth measures the country’s economic performance by providing an in-depth view on Australian’s economy state. Unemployment Australia has been facing an increase in unemployment due to the increased number of part-time jobs. Many employees are not employed full time leading to fluctuations employment rate as the part-time jobs are said to be seasonal. This has led to rising in the number of the people who are jobless, but the economy has remained stable. The unemployment rate has averaged around 6.9% where the young people are the ones that are highly affected by the unemployment. The number of the workers that are available to work are higher than the job creation. Besides, the government has not been creating new jobs to meet the increasing number of the people looking for the job opportunities. As a result, the labor market has been saturated by a larger number of workers than it can absorb in the system (Dunt, Emily and Ian, 335). The unemployment rate rises from 0.1% to 5.8% within four months in line with the forecasts. According to Australian Bureau of Statistics, there is unemployment decrease to 725500. The unemployed persons that are looking for full-time jobs declined to approximately 482,400 from 13,300 and the individuals looking for part time jobs are said to have increased by around 7,800. Inflation Australia has experienced a rise in the consumer prices by around 1%. Essential categories of consumer prices index in Australia can include a housing with around 22.3, food and beverage with 16.8%, culture, and recreation with around 12.5%, transport with around 11.6% and household services and equipment with 9.1%. The most significant rise in prices in Australia was experienced in the hospital and medical services, by around 4.2% and in the automotive fuel with around 5.9% (Dollery, Brian and Wai, 225). The increased prices in the medical services can be attributed to the increase in the premiums related to the private health insurance. The tradable inflation that was influenced by the global factors was experienced in the increase in the automotive fuel. The interest rates in Australia can be held responsible for the changes in the prices of commodities in the country. Inflation has been associated with some significant effects on the economy as it influences the wealth and income. The inflation rates in Australia are said to affect its competitiveness in the international markets. A stable and low inflation rate are considered essential to the welfare of the citizens and the success of the economy. Inflation affects the purchasing power of the consumers due to the increased prices of commodities (Powell, 670). Trade Australia has been involved in various international transactions that involve exportation and importation of goods in the international markets. Besides, Australia has been experiencing a significant movement of money between Australia and other countries globally as states are taking some investments in Australia. The exports from Australia are said to account for approximately 1% of the international trade globally. The government of Australia has been working towards encouraging international trade in the country by reducing the restrictions affecting the international transactions negatively (Dungey, Mardi, and Adrian, 335). For instance, the government has reduced taxes and other tariff rates that might hinder importation of products. Besides, the government has been providing financial assistance to the domestic companies by providing support through subsidies. Fiscal and monetary policy The Australian government has been coming up with monetary policies that can assist in the economic growth. It has been focusing on addressing structural issues that can guarantee the sustainability of the economic development for a long term. Some of the monetary policies that Australian government has been using in the process of ensuring economic sustainability include control of the interest rates. Besides, the Australian government has been regulating the taxation policies aiming at improving the economic growth. This is because taxation has been a challenge to many organizations in the process of achieving an increase in the market share. The government has availed credit facilities and government subsidies to encourage economic development in the countries. Fiscal policies can entail changing the level of taxation, borrowing, and government spending to affect the aggregate demand (Dollery, Brian, and Wai, 220). The monetary policies can involve changing the interest rates aiming at controlling the amount of money in the market. It is through the changes in the interest rates that the costs of borrowing are changed that do determine the borrowing. In cases where the interest rate is high, the number of borrowers tends to reduce due to increased costs of borrowing. On the other hand, when the interest rates are low, the number of borrower increase due to the low costs of borrowing. As a result, the money supply is said to increase leading to inflation. Australia has been encouraging free trade by reducing the tariff protections. Free trade has led to improved trade terms with the other countries leading to increased efficiencies in conducting international trade. Besides, free trade has assisted in encouraging international specializations where countries can engage in the production of a certain line of production. The firms that can realize costs advantages are the only companies that survive due to the increased competition due to the free trade. As a result, organizations work towards ensuring efficiency in their operations aiming at reducing the related costs of production (Adams, 560). Free trade force countries to engage in manufacturing of products that they can produce cheaply. For instance, Australia is said to cheaply produce iron ore due to the absolute advantages that exist in the process of manufacturing the iron ore. Australia has benefited from free trade as its economy has grown due to the various benefits associated with free trade. For instance, with free trade more jobs that be created leading to increasing in the GDP. Conclusion The Australian government adopts some macroeconomic policies that are geared toward minimizing the fluctuations in the economy. The macroeconomic policies are designed to control demand in the country aiming at achieving sustainable economic growth through ensuring that there are low unemployment rates and inflation. The macroeconomic instruments that the government of Australia can employ in the process of ensuring sustainability in the economic growth can include the use of monetary policies and fiscal policies. The fiscal policies and the monetary policies are geared towards ensuring that Australia can realize economic growth. Improvement in the economic growth is said to contribute a lot in the process of raising the living standards of Australia. Besides, it is through economic growth that the essential public services like medical and education services can be offered to the citizens. Works cited Adams, Philip D., et al. "Forecasts for the Australian economy using the MONASH model." International Journal of forecasting 10.4 (2004): 557-571. Dollery, Brian, and Wai Ho Leong. "Measuring the transaction sector in the Australian economy, 1911–1991." Australian Economic History Review 38.3 (2008): 207-231. Dungey, Mardi, and Adrian Pagan. "A structural VAR model of the Australian economy." Economic record 76.235 (2000): 321-342. Dunt, Emily S., and Ian R. Harper. "E-commerce and the Australian economy." Economic Record 78 (2002): 327-342. Lenzen, Manfred. "Environmentally important paths, linkages and key sectors in the Australian economy." Structural Change and Economic Dynamics 14.1 (2003): 1-34. Powell, Alan. "A complete system of consumer demand equations for the Australian economy fitted by a model of additive preferences."Econometrica: Journal of the Econometric Society (2006): 661-675. Read More