Unemployment, the Cause and a Remedy - Assignment Example

Short answer questions Name Course Institution Date Question 1- LINE GRAPHS AUSTRALIA YEAR INTEREST INFLATION UNEMPLOYMENT REAL GDP 2010 3.80% 2.00% 5.50% 0.70% 2009 3.00% 4.00% 4.60% -0.90% 2008 6.80% 3.00% 4.30% 0.80% 2007 6.20% 2.40% 4.60% 1.70% 2006 5.50% 2.90% 5.10% 0.60% 2005 5.20% 2.40% 5.30% 0.60% 2004 5.10% 2.50% 5.70% 1.30% 2003 4.80% 3.00% 6.20% 0.20% 2002 4.20% 3.00% 6.80% -0.40% 2001 5.10% 5.90% 6.20% 1% 2000 5.50% 2.80% 6.50% 1.10% Graph (Kitson, 2010, p. 193) UNITED STATES YEAR INTEREST INFLATION UNEMPLOYMENT REAL GDP 2010 0.20% 2.90% 1.00% 5.00% 2009 0.20% 0.10% 8.00% -6.80% 2008 4.20% 4.10% 5.00% 2.90% 2007 5.20% 2.20% 4.60% 2.90% 2006 4.20% 3.20% 4.90% 2.00% 2005 2.20% 3.00% 5.50% 3.00% 2004 1.00% 1.90% 5.60% 3.70% 2003 1.20% 2.80% 6% 0.00% 2002 1.80% 1.30% 5.50% 1.30% 2001 6.50% 3.50% 3.90% 50.00% 2000 5.40% 3.00% 4.00% 7.00% Graph EUROPE YEAR INTEREST INFLATION UNEMPLOYMENT REAL GDP 2000 3.00% 1.70% 4.00% 4.00% 2001 4.70% 2.30% 8.80% 3.70% 2002 3.20% 2.00% 8.00% 1.00% 2003 2.60% 2.10% 8% 1.10% 2004 2.00% 2.00% 8.80% 1.20% 2005 2.00% 2.30% 9.10% 1.70% 2006 2.30% 2.20% 8.80% 2.10% 2007 3.50% 1.90% 8.00% 3.40% 2008 4.00% 3.10% 7.40% 2.30% 2009 2.00% 2.00% 8.50% -5.00% 2010 1.00% 0.90% 9.80% -2.00% Graph Question 2 In 2009, it is evident that Australia was facing an Economic Downturn. The unemployment rate stood at 4.6% and the rate of inflation was at the highest in seven years, standing at 4.0%. The GDP also was at -0.9 having dropped from 0.8% in 2008. This was the lowest GDP experience in a period of over 10 years. By July 2009, 9.7% of the employed women were underemployed and 6.4% of employed men were underemployed. United States recorded the highest unemployment rate of 10% in 2010. The rate was 8.0% in 2009 that had rose from 5.0% in 2008. This has been a cause for economic downturn in the country. The GDP growth rate was also at its lowest during the same year averaging at -6.8%. The financial system of the United States experienced almost a complete meltdown in the financial year 2008/2009. The meltdown was caused by the great-accumulated debt by the US government, state governments as well as the consumers’ debt. This has been the cause of GED in US being experienced in US to date (Boyes & Melvin, 2010, p. 97). Economic downturn in Australia has tested the resilience of the country’s economy. The local governments are affected by the likely decline in income and the emerging service demand. The downturns are the catalyst for structural change. The long period for economic growth in Australia has buffered the industries against the economic shocks. The pressure is increased during the very difficult economic conditions. For example, due to the prolonged drought in Australia, the Agricultural industries have undergone changes In the recent years, United States has had the lowest interest rate standing at 0.2%. The low interest rates have led to emergence of a new class of borrows. These borrowers are encouraged by the mortgage brokers to buy homes and as a result, a large amount of capital has been taken to the mortgage market. This capital is given to people who have weak credit histories and his has increased the debt deficit in the US. This has also been a cause of the Global Economic Downfall (Krugman & Wells, 2010, p. 88). The European countries have also experienced the Global Economic Downturn in the recent years. This is evident from the data collected in that the levels of unemployment shoot up to 9.8% in the year 2010. The rate has increased drastically from 2007 to 2010, shooting from 7.4% in 2007 to 8.8 in 2008 and recording the highest in 2010. The rate of growth of GDP has also been quite low in the mentioned years standing at negative growth. From the collected data, it can be concluded that the three economies have experienced economic downfall in the recent years, the worst being between 2008 and 2009. Again, each of the three economies has experienced a negative GDP growth at some point. However, Australia has not been affected much as compared to the other two economies. Europe has experienced the highest rates of unemployment hitting 9.8% in 2010 and averaging at approximately 8.3% in the last one decade. United States has had the lowest interest rates in the past two years, going as low as 0.2% in 2009 and 2010 (McConnell & Brue, 2007, p. 89). Another observation from the collected data is that the rates for the three economies have been fluctuating. They have not been consistent. However, the inflation rate for Europe has been relatively low as compared to that of Australia and United States. We can also observe that the rate of interest is not similar for all the economies. That of Australia has been relatively high, perhaps the reason as to why the country has not face much downturn in past decade as revealed by the data. Question three The fall in coal and iron ore production led to a decline in output, that is, supply. A reduction in supply caused an increase in prices of the concerned products. This can be represented graphically by a shift of the aggregate supply curve to the left. It will shift from aggregate supply 1 to aggregate supply curve 2. The intersection of the two curves will shift to the upper left from point A1 to point A2. At point A2 the output will have decreased and the price level will have increased. The aggregate supply curve does not shift independently because its equation does not contain indirectly related terns to the price level or to the output. The terms are derived from the aggregate supply- aggregate demand model (AS-AD) (Krugman & Wells, 2009, p. 112) Price level AS1 AS2 P2 P1 AD Q2 Q1 Output A graph showing aggregate supply of coal and iron ore The increase in prices is due to scarcity of the products. With this shortage there is no competition and therefore the prices become high. Natural calamities like prolonged drought, flooding, earthquakes could lead to low or no supplies at all. The buyers however will be willing to buy the products even if the price is high because they don’t have an alternative. All the same, this depends on the type of product. In our case, we are dealing with minerals which are required so much yet they have no substitutes (Arnold, 2010, p. 89). A supply curve is a curve showing the total supply of goods and services produced in an economy at a given price level in a particular period. Id describes the relationship between the quantity produced and the price levels. Usually the relationship between the output produced by the firms and the price level is positive. The rising prices signify they the firms should expand their production to meet the required higher aggregate demand. Question 4 Once the supply of coal and that of iron ore start to increase, the aggregate supply curve shifts from AS1 to AS2 and the prices decrease from P1 to P2. This usually happens because an increase in supply leads to a decrease in prices. This is because there will surplus production which will lead to high competition forcing the prices to fall. As mentioned earlier the high prices signal that production of goods and services should be increased by the firm Price level AS1 P1 AS2 P2 AD 0 Q1 Q2 output A graph showing increase in supply of c and iron ore Question 5 Increase in demand in an economy will shift the demand curve from AD1 to AD2. The price will also shift from P1 to P2. Price level AS P2 P1 AD2 AD1 Q1 Q2 Output A graph showing increase in aggregate demand The increase in the aggregate demand affects the economy as a whole. It leads to increased output and average prices, which are affordable. There are usually four sources of demand which include government (government purchases), households (personal consumption, investment and foreign markets. Aggregate demand is the relationship between the quantity of the goods and services demanded and the price level. The aggregate demand curve represents aggregate demand (Baumol & Blinder, 2011, p. 76). The increased demand in China, India and other emerging countries has expanded the world market especially for Australia. In 2003, China accounted for one third of the world’s imports, boosting the world trade. This high level of importation has helped to develop economies of other countries that count China, India and other countries as a target market. Over the past decade, China has shown great demand for minerals which has been accompanied by high levels of urbanization. Combined with its high population, this means that China is the biggest contributor to growth in the mineral resources industries in Australia. Increased demand has also been helpful to Australian economic growth in that it leads to innovation that leads to increased production hence boosting the economic growth of an economy. The increased aggregate demand in India and China has boosted the Australian economy in that the high demand is making the country to import several products from other countries especially the ones they have signed trade agreements with. Agricultural products to feed the growing population are being imported from countries like Australia leading to their economic growth with the increased multinational trade. The demand for wool from the merino sheep in Australia by the Chinese government has also played a major role in development of the Australian economy. The increased textiles industries in China are making the country to import wool from other countries Australia included. This exported of wool by the Australian government has boosted the economy because of the foreign exchange earned. References Arnold, R. A., 2010, Macroeconomics, 10th ed. Cengage Learning. Baumol, W. J., & Blinder, A. S., 2011, Economics: Principles and Policy, New York: Cengage Learning. Boyes, W., & Melvin, M., 2010, Macroeconomics, 10th ed., Cengage Learning. Kitson, A., 2010, Unemployment, the Cause and a Remedy, London: Nabu Press. Krugman, P., & Wells, R., 2009, Macroeconomics, 2nd ed., New York: Worth Publishers. Krugman, P., & Wells, R., 2010, Microeconomics, 2nd ed. New York: W H Freeman & Co. McConnell, C. R., & Brue, S. L., 2007, Economics: principles, problems, and policies, 17th ed., New York: McGraw-Hill Irwin. Read More