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MCR001 Economics Assignment

Assessment 2

Task Description:

Your manager has asked you to brief him on the current Macroeconomic Situation in Australia. Write an individual memo of about 400-500 words (2 pages including the reference list) to brief your manager on the current Australian Economy, including the AD/AS Model (in a Word’ document, 2 pages, including the reference list, font size 12 with 1.5 line spacing). The memo should include five sections (headings).

Answer

Memo Writing

Current Macroeconomic Situation in Australia

Overview        

Australia’s economy is currently characterized by high inflation rates and slower GDP growth, driven by rising labor costs and global supply chain issues. Forecast made by the central team is that the inflation rate is going to shed to approx 4¾ percent by the end of 2023 and will further reduce by approximately 3% till the mid of 2025. Prediction is that the GDP growth is going to slow down by the end this year and next, at stick to 1½ %. The relevance behind presenting this memo is to assess the key variable in macroeconomic and different adjacent factors that seems to be applying to each one of them. Use of AD/AS model can play a determinat role to analyse which phase seems pertinent to the current Australian economy.

Basic Variables in Economics

The key economic variables in Australia are inflation rates, GDP growth, and labour market conditions. Inflation has been driven by the high prices of goods and services, especially for market services, where prices are 7 per cent higher over the year. GDP growth has slowed since the first half of 2022 due to declining real wealth, inflated “interest rates”, and constant surge in “cost of living.” However, the terms of trade have remained high, which has boosted national income. Labor market conditions have remained tight, with the unemployment rate at around 3½ percent in recent months, job ads and vacancy rates remaining very high, and wages growth picking up, particularly in the private sector.

The AD/AS Model

The current Australian economy can be represented by the AD/AS Model. The initial point behind making such a comment about the economic viability caused in the Australian economy is mainly because of the aggregate demand curve intersecting the estimated supply curve in the short run. At this point it can be seen that the economy is experiencing a an inflated rates and slower GDP growth. The high demand for labor along with non-availability of any skilled category of labor is expected to restrict the pace by which investment and other projects works could get delivered (Australia, 2023). The elevated terms of trade and increased net arrivals from overseas have boosted growth in the working-age population, but the effects of minimized real wealth and higher interest rates are expected to stay at par on demand at any future course of time.

SOURCE- (Khan Academy, 2016)

The Key Economic Indicators

The key economic indicators in Australia are inflation rates, GDP growth, labor market conditions, and wage growth. Inflation rates have peaked at 7.8 percent over the year to the end of December quarter. Forecast made by the central team is that the inflation rate is going to shed to approx 4¾ percent by the end of 2023 and will further reduce by approximately 3% till the mid of 2025. The growth of the GDP is mostly expected in lose its momentum and stick around approx 1½ % by the end of this year till the future period. Labor market conditions remain tight, with the unemployment rate at around 3½ per cents in recent months, job ads and vacancy rates remaining very high, and wages growth picking up, particularly in the private sector (Australia, 2023).

The Conclusion

In conclusion, Australia’s current macroeconomic situation is characterized by high inflation rates and slower GDP growth, driven by rising labor costs and global supply chain issues. The AD/AS Model shows that the economy is in a phase of high inflation rates and slower GDP growth in the short run. The key economic indicators, including inflation rates, GDP growth,labor market conditions, and wage growth, reflect the current state of the Australia economy.

References

Australia, scheme=AGLSTERMS A. corporateName=Reserve B. of (2023). Overview | Statement on Monetary Policy – February 2023. [online] Reserve Bank of Australia. Available at: https://www.rba.gov.au/publications/smp/2023/feb/overview.html.

Khan Academy (2016). How the AD/AS model incorporates growth, unemployment, and inflation. [online] Khan Academy. Available at: https://www.khanacademy.org/economics-finance-domain/macroeconomics/aggregate-supply-demand-topic/macro-changes-in-the-ad-as-model-in-the-short-run/a/how-the-ad-as-model-incorporates-growth-unemployment-and-inflation-cnx.

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