BEO1105 Economic Principles

Question:

Data collection, presentation and analysis. The Greek economic crisis has been a hot topic lately as it looks likely that it will default on its debt.

You will need to gather, present and analyse economic data from Australia, Germany and Greece.

You can use The World Bank website under Data to gather and present annual data. These data include: GDP per capita (in constant 2005 US$); GDP annual percentage growth rate (using the GDP inflation figures); and total unemployment rate for each country for the years 2005 through 2016. Some countries may have data only up to 2013. In this case, data from 2005 — 2013 would be acceptable.

The tables will be used to display the data first.

You can decide how many tables you want to use and what countries/variables to include in each one.

Each table must have a number and a title that clearly indicates its contents.

To create the following graphs, use the Excel graphing tool (line graphics) to extract the data.

Indicate where the data was taken from under each graph.

You should also label each axis as well as each variable and give your graph an appropriate title.

Answer:

Question one

Table 1: GDP per person (constant 2010 US$).

Source: The World Bank

Table 2: Australia’s GDP Growth, Inflation, & Unemployment Rates

GDP growth (annual%)

Inflation rate

Unemployment rate

Source: The World Bank

Table 3: Germany’s GDP growth and Inflation rates

GDP growth (annual%)

Inflation

Unemployment

Source: The World Bank

Table 4: Greece’s GDP growth rate, Inflation and Unemployment rates

GDP growth (annual%)

Inflation

Unemployment

Source: The World Bank

Table 5: Singapore’s GDP Growth, Inflation and Unemployment Rates

Annual GDP growth

Inflation

Unemployment

Source: The World Bank

Question two

Economic Analysis

Graph 1 – Australia’s economic outlook, 2005-2016

Source: Table 2.

GDP Growth and Unemployment Rate

Okun’s Law states that Australia’s Gross domestic product and Unemployment rate are in good agreement. That is, there is a negative relationship between the Gross Domestic Product growth of Australia and unemployment (Arnold 2013).

Australia saw a decline in unemployment between 2005-2008.

The unemployment rate in 2005 was 5.03%. It was 4.54% for 2008.

The growth in Gross Domestic Product was also noticeable, which is a rise from 3.20% in 2005, to 3.70% by 2008 (The World Bank 2017).

Similar trends were also observed from 2010 to 2011, and 2015 to 2016.

The unemployment rate was high in 2009, 2013, 2014. and 2015.

Therefore, Australia’s economy slowed during these financial periods.

This type of correlation shows the importance that employment plays in economic growth.

If unemployment falls, it is an indicator that the employment rate has increased.

If there are more people working, then the consumption and investment in the economy will grow, leading to an increase in aggregate demand and a rise in real gross domestic product (Sloman and Wride, 2015).

Between 2005-2016, Australia saw 1.81% economic growth.

This was due to the 2008-2009 Global Financial Crisis.

Due to the decline in demand in this crisis, there was a decrease in aggregate demand. This led to an increase in unemployment and a slowdown of economic growth.

Inflation and GDP Growth

Inflation and GDP growth have shown positive correlation in some years while they moved in opposite directions in others.

For instance, 2013 saw an economic growth of 2.57%, compared with 3.63% in 2012.

The inflation rate in 2013 was also lower at -0.17% than it was in 2012.

This illustrates how a drop in real GDP, due to a decline in aggregate demand, results in a decrease of the price levels.

The 2009 recession saw an increase in inflation.

This correlation can be attributed the Australia’s expansionary monetary-fiscal policies during the Global Financial Crisis. (Australian Government, 2015).

These expansionary policies led to higher inflation and increased money in circulation.

Unemployment and Inflation

There is a tradeoff in inflation and unemployment rates.

Inflation increases when unemployment is low, while it falls when unemployment is high.

2005 saw a level of unemployment of 5.03%, while inflation was at 3.71%.

The World Bank 2017 shows that inflation in 2011 was higher than the unemployment rate of 5.08% at 6.18%.

Government policies for stabilizing the economy are responsible for this tradeoff between unemployment, and inflation.

Expandive economic policies are used by the government to reduce unemployment.

These policies stimulate demand which results in growth of the economy and creation of jobs.

Inflation happens when the aggregate supply is not able to meet the demand.

Contractionary policies used to lower inflation can often lead to a rise of unemployment (Goodwin Nelson & Harris, 2014).

Graph 2 – Germany’s Economic Outlook (2005-2016).

Source: Table 3

GDP Growth and Unemployment

The German unemployment rate has been declining between 2005-2016, even though it has been slowing down.

The unemployment rate dropped to 10.25% in 2006 from 11.17% in 2005, following an increase of 3.70% in economic growth from 0.71% in 2005. A similar trend was also seen in 2010.

This relationship shows that an increase of output increases employment creation.

Despite Germany’s economic recession of 2009, unemployment didn’t rise significantly during the Global Financial Crisis.

Inflation and GDP Growth

Germany has had relatively low inflation rates over the last decade.

Different years saw different trends in the relationship between inflation and GDP growth.

In 2006, Germany’s economic growth was greater than the inflation.

The economic expansion was due to an increase of aggregate demand.

It could also have been caused by supply side factors, such as technological improvements and improved labor productivity.

Contrary to popular belief, 2008 saw a decline in Gross Domestic Product and an increase in inflation.

Evidently, the decline of GDP is due to a decrease in aggregate demand. That is why inflation was also lower during this financial year.

Unemployment and Inflation

From 2005 to 2016, the rate of unemployment exceeded that of inflation.

However, the country’s unemployment rate is on the decline.

Low oil prices account for the low inflation rate in Germany (BBC, 2015).

A decrease in oil prices has caused a drop in the production cost.

As a result, aggregate supply has increased leading to a decline in general prices and an increase in the real gross domestic product and a rising employment rate.

Graph 3: Greece’s economic outlook, 2005-2016

Source: Table 4

GDP Growth and Unemployment

In Greece, unemployment has been rising as the Gross Domestic Products has been declining.

In 2009, the Great Depression brought about a rise in unemployment. It was at its highest point in 2013, when it reached 27.47%.

Greece’s economic woes can be attributed to its large external debt, which has negatively impacted its creditworthiness and scared investors.

In turn, this has led to lower aggregate demand and less investment.

Inflation and GDP Growth

Low levels of inflation have led to deflation in certain financial years, despite a decrease in GDP growth.

Greece, despite having significant debt payments, has had little financial resources to encourage investment and consumption.

As a result, aggregate demand has decreased leading to a fall in the general price and economic contraction.

Inflation and Unemployment

The 2008 Global Financial Crisis saw unemployment rise and inflation fall.

Insufficient aggregate demand was the reason for this trend.

The Gross Domestic Product (GDP) and prices will fall if the economy has less total demand.

With low demand for products, companies reduce production (Boyes & Melvin (2012)).

The result is that the demand for labor falls, leading to an increase in unemployment.

Companies may terminate employees or close their doors in some cases.

Graph 4 – Singapore’s economic outlook, 2005-2016

Source: Table Five

GDP Growth and Unemployment Rate

The rise in Singapore’s gross domestic product leads to a fall in the unemployment rate.

In 2006, for example, the GDP grew by 8.86%, as compared to 7.49%.

This growth in Gross Domestic Product led to unemployment falling to 4.48% from 5.59% during the same time period.

In 2009, the unemployment rate in Singapore rose to 4.30%, from 3.96% when it went into recession. (World Bank, 2017).

The key to employment creation in Singapore is GDP expansion.

Inflation and GDP Growth

Singapore has seen low inflation and even deflation within a few years.

Even through deflation, Singapore has experienced remarkable economic growth.

Singapore’s economy experienced a 15.24% increase in 2010 while the inflation rate was -0.05%.

This trend suggests that growth in GDP could have been due to supply side factors, such as technological advancements and improved labor productivity.

Singapore’s GDP has shown moderate growth over the past few years.

This slow growth is due to low inflation and deflation (LEE, 2015).

Inflation and Unemployment

In Singapore, there is a negative correlation of unemployment and inflation.

If inflation is low, then unemployment is high. Conversely, if inflation is high, unemployment falls.

In 2005, for example, the inflation rate was 2.23% and the unemployment rate was 5.59%.

Similar results were seen in 2016. Inflation was -1.44%, while unemployment was 1.83%.

This relationship shows that high unemployment is caused by a country trying to lower its unemployment rate. Inflation will also rise if the country targets it.

Graph 5 – Comparison

Source: Table two to five, three to four, four, and five

Global Financial Crisis: The Impact

These economies experienced different effects during the Global Financial Crisis in 2008 and 2009.

Australia did well, as its economy didn’t go into recession.

This country has just experienced a slowdown in its economic growth. It went from 3.70% to 1.81% in 2008 and 2009.

Germany, Singapore, Greece and Greece all entered recession, but the extent of that contraction varied.

Germany’s economy contracted at -5.62%, Singapore at -0.60%, and Greece at -4.30.

In addition, the unemployment levels during the Great Depression 2009 varied from one country to the next.

At 9.62%, Greece was the most unemployed country while Singapore had 4.3%.

Global Financial Crisis: Recovery

Economic outlook of the four countries reveals that their recovery from 2009’s Great Depression was not the same.

Singapore’s remarkable economic recovery was demonstrated by its extraordinary 15.24% growth in 2010, which is a record (The World Bank 2017).

Australia and Germany also fared well in the aftermath of the crisis.

But, Greece is still reeling from the Global Financial Crisis.

Five times has the country’s economic been in recession since 2009.

Increase in GDP Growth Between 2015 and 2016.

These economies all have experienced a significant increase in their GDP growth in recent years (2015 and 2016).

Australia’s GDP grew by 2.42% to 2.777%, Germany by 1.72% and 1.87%, Greece, -0.22%, Singapore by 1.93% and 2.00%, respectively (The World Bank 2017, 2017).

Question 3

Graph 6 – Data extracted from the OECD

Graph 7 – Living standards

While money cannot buy happiness it can help you live a better life and have a greater sense of well-being.

Australians have greater disposable incomes that enable them to afford quality housing, healthcare, and education.

The GDP per person in Australia is greater than the GDP of Germany and Greece (World Bank, 2017).

This shows that Australians live longer and are more satisfied.

Human well-being is dependent on good interpersonal relationships.

A strong community and strong social networks can help you access the emotional support you need to live a happier life.

According to OECD 2017, 95% of Australians are able to rely upon others and have a support network that contributes to their happiness.

Education is key to economic and social development.

Individuals can gain the skills and knowledge necessary for labor participation through education.

Australia has a 77.1% education attainment rate, which means that the majority of Australians have access and are able to learn (OECD, 2017).

Because of this, they can access jobs that will provide income for their daily needs.

Individuals’ well-being is affected by the quality of their environment.

A highly polluted environment can cause severe health problems.

Australia ranks one of the thirty-eight countries with the lowest levels of air pollution.

Also, 94% Australians have clean water and high life satisfaction.

As in Australia, Germany’s GDP per capita is steadily increasing.

This is a sign that the country’s living standards are rising.

Higher incomes allow individuals to access better housing, education, and health care.

Germany also offers policies to help low-paid individuals.

92% of people in Germany have someone to rely upon if they need help (OECD 2017, 2017).

There are social networks that enable people to access the necessary emotional support, which can contribute to their well-being.

Life satisfaction is also enhanced by programs that aid migrants to integrate into their community.

High Education Attainment

The 86.9% rate of education attainment shows that a substantial portion of Germany’s citizens have access to education (OECD (2017)).

Education plays an important role in eliminating social inequality.

Some people are employed, while others set up their own businesses. This reduces the problems associated with poverty.

Germany has a life expectancy that is 81 years. (OECD, 2017).

This shows that the country’s leadership is working to improve the health of its citizens.

Good health contributes to happiness in life.

Greece ranks low in life satisfaction.

This low rate can be attributed to low income.

The GDP per person in Greece has been declining since the Global Financial Crisis.

Dissatisfaction is resulting from the fact that living standards are declining.

Greece’s quality support network rates are 83.4% (OECD (2017)). This is lower than the 88% OECD-average.

This indicates weak social networks, which could lead to limited economic opportunities, a lack or insufficient emotional support, and eventually, feelings of isolation.

Environment pollution is also responsible for the low level of satisfaction with life in Greece.

The country’s high level of pollution is due to the fact that most people do not have clean water.

A large amount of pollution has been shown to be a problem for the health and well-being.

Education is crucial for economic and social development.

Greece’s educational attainment is 68.3%, which falls below the OECD standard at 76% (OECD (2017)).

Low education levels are limiting the ability to obtain employment and reducing life satisfaction.

Australian Government.

The Great Depression.

(2015, 15 January).

German inflation falls below five years.

Mason, OH – South Western.

Macroeconomics: A context.

Armonk (New York): M.E.

GOVERNANCE & ECONOMIC CHANCES IN SINGAPORE.

Singapore Economic Review, 1-15.

OECD

Better Life Index.

Economics (9th Edition).

Harlow: Pearson.

The World Bank.

GDP growth (annual%).

The World bank.

(2017 August 2nd).

GDP per capita (constant 2010 US$).

The World Bank.

The World Bank.

2017

Leave a Reply

Your email address will not be published.