Principle Of Economics For Accountant: GDP Essay

Questions:

1. Australia’ s economy is growing at 3.3% and has a real GDP per capita of US$ 54,000. Suppose that the Netherlands is growing at 4.8% with a real GDP per capita of US$ 42,0000. How many years would it take for the Netherlands’ GDP per capita to overtake that of Australia? (Show your working).

2. The article claims that “Australia has now notched up 100 quarters without a recession”. Carefully define the term recession and briefly outline two other indicators of a recession mentioned in the article. (If other sources are used please state the complete reference in your answer)

3. Use the national income identity to explain which sectors, according to the article, are currently performing well and which ones are not.

4. State the latest figure available for the unemployment rate in New South Wales, Victoria and Queensland carefully citing the source of your information.

Answers:

1. As Australia’s economy is growing at 3.3% and has a real GDP per capita of US$ 54,000. Suppose that the Netherlands is growing at 4.8% with a real GDP per capita of US$ 42,000, the number of years required is ‘t’, following the formula of compound interest rate the given problem can be written as:

54000*((1+ (3.3/100)) t = 42000*((1+ (4.8/100)) t

i.e. 54000*1.033t = 42000*1.048t

i.e. (54000/42000) = (1.048/1.033)t

i.e. 1.2857 = (1.0145) t

i.e. log(1.2857)= t log(1.0145)

i.e. t = log (1.2857)/log (1.0145)

i.e. t = 16.873.

Hence, Netherlands will take 17 years to overtake the real GDP per capita of Australia.

2. Recession is a state of the economy where the economy shrinks significantly through a certain time period (Smithin 2013). As stated by Wray (2015), during recession, a country’s economy witnesses a fall in the Gross Domestic Product (GDP) along with the employment rate.

In the given article there are several indicators of recession in Australia. Among those indicators, two are as follows:

Western Australia’s jobless rate is at 6.3 percent, which is second to South Australia’s 6.4 percent.Western Australia’s domestic demand has declined by 2.5 percent.

The unemployment rate in Australia has the possibility of increasing as the mining boom in the country fades. From the data given above, it can be said that without government expenditure the country’s unemployment rate can increase. This will result in recession in the near future.

3. As per the ideas of Godley and Lavoie (2012), the national income identity is Y = C + I + G + (X – M), where Y is the national income or Gross Domestic Product, C is domestic consumption, I is the private investment, G is government expenditure, X is exports, and M is imports.

According to the article, C, I, and X are not performing well, whereas G is performing well. In the views of Professor Mitchell, G is the only thing which is keeping the growth positive in this quarter. The Global Financial Crisis of 2007 is partly responsible for the fall in export (X) sector.

4. The unemployment rate in New South Wales, Victoria and Queensland are given below:

  • The latest unemployment rate in New South Wales is 4.9 percent.
  • The latest unemployment rate in Victoria is 5.7 percent.
  • The latest unemployment rate in Queensland is 5.8 percent (Employment 2016).

From the above data, it can be said that the employment process in Australia is not balanced, as inequality holds. The unemployment rates differ in different states. The present boom in the country’s economy is due to the mining boom in the country. Thus, it is assumed that when the boom will fade, the economy of Australia will face a recession along with higher unemployment rates. The data can be presented in a figure as given below:

Figure 1: Unemployment rate in New South Wales, Victoria and Queensland (in percentage).

Source: Employment 2016.

References:

Employment, D. o., 2016. Labour market information portal. [Online] Available at: [Accessed 21 december 2016].

Godley, W. and Lavoie, M., 2012. Monetary economics: an integrated approach to credit, money, income, production and wealth. Springer.

Smithin, J.N., 2013. Essays in the Fundamental Theory of Monetary Economics and Macroeconomics. World Scientific Publishing Company Pte. Limited.

Wray, L.R., 2015. Modern money theory: A primer on macroeconomics for sovereign monetary systems. Springer.

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