Economics Australian Bureau of Statistics

Questions: 1.Define and provide sources for the data obtained including the ABS catalogue number and Calculate the rate of inflation based on the CPI and the rate of average weekly earnings growth and plot the inflation rate and weekly earnings growth on a single diagram? 2.Analyse the consequences for real GDP and the general price level of the following scenarios. Confine your analysis to the short-run. In your response clearly state your assumptions and illustrate your answers with diagrams? Answers: 1. The objective in the given case is to compute the inflation for the period 2005-2015 using the relevant data from Australian Bureau of Statistics (ABS). In order to find the same, the following data was obtained from catalogue no. 640l Date CPI Dec-04 81.5 Dec-05 83.8 Dec-06 86.6 Dec-07 89.1 Dec-08 92.4 Dec-09 94.3 Dec-10 96.9 Dec-11 99.8 Dec-12 102 Dec-13 104.8 Dec-14 106.6 Dec-15 108.4 Based on the above values as on December 31 of the respective years, the percentage change has been computed in order to yield the following inflation figures for Australia. Further, the next task was to evaluate the annual growth rate in weekly earnings for which the first step was to find out the weekly earnings at different times using the relevant data from catalogue no. 6302 (ABS, 2017). Date Average weekly earnings ($) Nov-04 973.2 Nov-05 1029.5 Nov-06 1058.9 Nov-07 1112.7 Nov-08 1164.9 Nov-09 1223.3 Nov-10 1272.5 Nov-11 1333.4 Nov-12 1393 Nov-13 1437.7 Nov-14 1476.3 Nov-15 1499.3 Based on the above values indicated at November 30 for each respective year, the yearly growth in the earnings (weekly) can be computed by finding the percentage change in the weekly earnings (ABS, 2017). Further, the computed inflation rate and growth in weekly earnings need to be represented in the form of one graph with time on the horizontal scale so as to depict the movement of the given values in relation with time. This is given below. It is interesting to note that the growth in weekly earnings has always surpassed the inflation except just two instances i.e. 2006 and 2015. This is indicative of the real wage growth in the given period. However, in the recent years a disturbing trend is visible where both the inflation and weekly earnings are showing a downward trend which is leading to macroeconomic data worse than the global financial crisis in 2008. It seems that the economy is heading towards a recessionary trend as demand and inflation both continue to dive despite fiscal and monetary policy related measures being undertaken (Mankiw, 2012). 2. The aim is to analyze the impact of the given change on two key macroeconomic indicators namely the inflation and real GDP using the AD-AS model. The requisite discussion is as indicated below. Based on the information provided, it is apparent that as the price of iron ore increase, the total exports of Australia would also rise since it is known to be a major Australian export. Assuming that the total imports remain the same, this would lead to an increase in net export which on account of being a constituent of GDP leads to increase in the same. With the increase in exports, it is likely that the fiscal deficit of the government would become lower thus allowing the government to spend higher. Besides, owing to higher ore prices, the mining industry and related sectors would benefit thus leading to higher income generation. The net impact of the above two would be in the form of greater aggregate demand for goods and services and thus lead to price increase as indicated in the following graph (Krugman Wells, 2012). As per the information provided, weather conditions have been quite suitable for agriculture due to which the agricultural output has witnessed an increase. The net result of this would in the form of increased real GDP since increased agricultural supply implies higher production from the economy. This increased production would cause the aggregate supply curve to shift in the downward direction which results in price coming down as the short term demand does not exhibit a change. This is summarized in the below mentioned graph (Dombusch, Fischer Startz, 2012). The decreasing price is clearly depicted coupled with higher real GDP in the above graph. It is noteworthy that this price decrease would not be limited to agricultural products but would be felt across the various agricultural based products as well and hence lower the overall food inflation (Barro, 2007). In accordance to the information provided, the government on account of rollout of a national broadband network is spending significant amount of money which is expected to lead to a higher GDP. This is primarily because government spending is one of the key components of GDP computation (Koutsoyiannis, 2013). Further, spending by the government would lead to higher income for the consumers which in turn would provide a boost to the aggregate demand as with higher availability of money, the consumers propensity to spend would rise This is turn would cause a rightward shift in the AD curve as the AS curve over the short term would remain constant (Mankiw, 2012). Thus, as highlighted above, increased government spending leads to higher price and higher real GDP (Barro, 2007). As per the information provided, there is a decrease in the price of a particular import which Australia engages in. This would result in reduced spending on the overall imports assuming other imports do not show any variation. Taking into consideration, a constant exports and reducing imports, the net imports is bound to increase which in turn would cause real GDP to increase (Krugman Wells, 2012). Also, it would be fair to expect that on account of the imports becoming cheaper, there would be an increase in the supply which is captured by the rightward shift in the AS curve indicated below (Koutsoyiannis, 2013). The diagram shown above clearly reflects that imports getting less expense lead to reduction in prices along with increase in level of real GDP. It is noteworthy that the increase in supply would not be limited to only the imported good but would also extend to goods that use the imported good in their production (Mankiw, 2012). References ABS (2017), Browse Statistics, Australian Bureau of Statistics, Retrieved from https://www.abs.gov.au/browse?opendocumentref=topBar Barro, R. (2007). Macroeconomics: A Modern Approach (4thed.). London: Cengage Learning. Dombusch, R., Fischer, S. Startz, R.(2012).Macroeconomics (10thed.). New York: McGraw Hill Publications Koutsoyiannis, A.(2013). Modern Macroeconomics(4th ed.). London: Palgrave McMillan. Krugman, P. Wells, R.(2012).Macroeconomics (3rd ed.). London: Worth Publishers. Mankiw, G.(2012). Principles of Macroeconomics (6th ed.). London: Cengage Learning