Contemporary Macro-economic Management
Name: My Lee On
Home Group: Whitty 2
Teacher: Mr Cameron
Table of Contents
1.0 Introduction 4
1.1 Purpose of this report 4
1.2 Uncertainties around the world 4
1.3 The Sovereign Debt Crisis 4
1.4 The effects of The Sovereign Debt Crisis to Australia 5
2.0 Economic Objectives & Indicators 6
2.1 Economic Objectives 6
2.2 Economic Indicators 6
3.0 Advanced industrialised Countries 8
3.1 Advanced industrialised countries – G20 8
3.2 Two advanced industrialised countries – Japan and USA 8
4.0 Analysis of the Indicators for each country 9
4.1 Economic Growth 9
4.1.1 Table – All 3 Country’s Economic Growth 9
4.1.2 Graph – All 3 Country’s Economic Growth 9
4.2 Inflation Rate 10
4.2.1 Table – All 3 Country’s Inflation Rate 10
4.2.2 Graph – All 3 Country’s Inflation Rate 11
4.3 Unemployment Rate 12
4.3.1 Table – All 3 Country’s Unemployment Rate 12
4.3.2 Graph – All 3 Country’s Unemployment Rate 12
4.4 Current Account to GDP 13
4.4.1 Table – All 3 Country’s Current Account to GDP 13
4.4.2 Graph – All 3 Country’s Current Account to GDP 13
5.0 Countries Economic Performance 15
5.1 Weightings and Ratings 15
5.1.1 Table – Weightings Table 15
Economic and Monetary Union (EMU) is a single currency area within the European Union single market in which people, goods, services and capital move without restrictions. It creates the framework for economic growth and stability and is underpinned by an independent central bank and legal obligations on the participating Member States to pursue sound economic policies and to coordinate these ...
5.1.2 Table – Weighted Rating Table 15
5.2 Weighted Ratings 16
6.0 Conclusion 17
6.1 Australia’s Overall Economic Performance 17
7.0 Bibliography 18
8.0 Appendix 19
8.1 Graphs for economic growth (All 3 Countries) 19
8.2 Graphs for Inflation Rate (All 3 Countries) 20
8.3 Graphs for Unemployment Rate (All 3 Countries) 21
8.4 Graphs for Current Account Balance (All 3 Countries) 22
8.5 Research Notes 23
1.1 Purpose of this report
The purpose of this report is to evaluate one global economic uncertainty which has impacted on the Australian economy. The Australian economic performance then will be compared to two other advanced industrialised countries through the use of 4 selected economic indicators. Data and graphs of these indicators will also be collected in order to assist with the evaluation of allocating weightings and ratings to each economic indicator chosen. After, all the collecting, analysing, comparing and evaluating of the data’s for Australia and two other countries, the overall question has to be answered, “Has the Australian economy performed better or worse than other advanced industrialised country in the climate of many global uncertainties?”.
1.2 Uncertainties around the world
As the year 2012 has just arrived, the economic world is said to be still facing a host of uncertainties in this New Year ranging from the Global Financial Crisis fall-out in the US, the Sovereign Debt Crisis in Europe and the declining economic growth in China and India.
There are many uncertainties in the world which don’t allow humans around the world to have a safe, happy life as the security of millions of people worldwide are threatened every day, locally or globally, whether by poverty, crime or violent conflicts, environmental or economic change, lack of human needs like water or food (Global Uncertainties, 2012).
A worldwide uncertainty which has affected millions of people, locally and globally is the “Sovereign Debt Crisis in Europe”.
... of banking crises,” Matthew Lynn, 2010. Bust: Greece, the Euro and the Sovereign Debt Crisis Martin Feldstein, 2011. Greek default is ... continuously. References Antonis Antoniadis, 2010. Debt Crisis as a Global Emergency: The European Economic Constitution and Other Greek Fables ... warning, to take overall regional action when one country has encountered difficulty and hardly deal with it. ...
1.3 The Sovereign Debt Crisis
The Sovereign Debt Crisis all started when a country in Europe, Greece decided to fake or lie about their financial reports in 2001 involving the figures for their government expenses, revenues, debt levels and inflation rates. All of these accounts were all reported incorrectly so Greece could adopt the euro in order to borrow more money at lower rates in addition to their government being able to spend more money. This deception continued for awhile until in 2009, when the country went under new government ran by a man named, George Papandreou (MyMoneycalculator, 2011).
When the new prime minister went through all of Greece’s financial reports more finely and carefully, he eventually declared that Greece was essentially broke. Greece’s debt in 2010 to GDP stood at a high level of 142.8% with GDP of $305 billion and the level of debt at around $400 billion. This is the one of the highest rates around the world.
The Greek government requested that the European Union and the International Monetary Fund bailout package be activated. After much hesitation, the EU and IMF offered Greece a bail package of 110 billion Euros ($163 billion) with an additional loan from a broader contingency fund of 500 billion Euros ($680 billion).
However, with all the new loans combined, it caused a recession and did little to ease their debt crisis as Greece’s debt load continued to increase.
1.4 The effects of The Sovereign Debt Crisis to Australia
The sovereign debt crisis is not the instance that happened in Greece, it’s a batch of events that led up to bigger problem that just boiled over with the debt crisis in Greece (European Debt Crisis, 2012).
This whole Sovereign Debt crisis in Europe had a domino affect on many countries like China, India, USA and Australia. Since Europe is undergoing a weak euro, it puts pressure on developing countries’ dollar-based exports.
China has been strike hard as their economy is slowing down; exports are falling and their overheated property market in weakening. These immediately affects the Australian economy as we mainly reply on imports and exports from and to China and if their economic growth slows down so do ours.
India with about 1. 2 million populations and china with about 1. 3 billon population are two big demographic and emerging countries in the world . Over a past few decade India’s combination into the economic has been accompanied by remarkable economic growth (World Bank 2011¬). India is having the 3th position on the economy in purchasing power parity (PPP) terms (The Economic Times, 2012). ...
2.0 Economic Objectives & Indicators
2.1 Economic Objectives
In Australia, there are 6 economic objectives which the government pursue in managing the economy. They are; Economic growth, price stability, full employment, external balance, standard of living and equitable distribution of income and wealth. These economic objectives are defined as the 6 most important goals of government economic policy. (L.Kirkwood, 2000)
For this report, only 3 economic objectives were further analysed and used because they will later be weighted and rated in order to be able evaluate Australia’s economic performance to 2 other countries selected. The 3 main economic objectives which this report will be focussing on are economic growth, internal balance and external stability.
Economic growth is the most widely used indicator of economic performance as it is the sustained increase in the proactive capacity of an economy, usually indicated by the increased availability of goods and services in the economy. Internal balance can be simply be defined as when the state of the Australian economy reaches full employment and little or no inflation possible. And finally, external stability is a situation in which there are no unwanted movements of foreign reserves in the balance of payments. (L.Kirkwood, 2000)
2.2 Economic Indicators
The 3 economic objectives chosen above, all have a range of indicators which are used to be able to compare Australia’s economic performance to 2 other countries. However, for this contemporary macro-economic management report, only one indicator from each economic objective will be used.
The Economic growth objective had a range of indicators like growth in housing approvals, growth in retail sales, percentage change in real GDP and growth in consumer credit. Percentage change in real GDP was the chosen indicator to measure economic growth because it can measure the economic growth rate more easily and accurately than other indicators.
"The transnational corporate system in the late 1990 s" by Robinson Rojas (1997) Transnational direct investment in less developed societies in the 1990 s is consolidating further the historical regional spheres of influence by the former colonial powers. By and large, Latin America, Africa, Asia and Eastern Europe are becoming more than ever "spheres of control of production and trade" by the ...
For the Internal balance objective, there are 2 sections involved, inflation and unemployment. As this economic objective has two sections to analyse, two indicators have to be chosen in order to measure each section. There are two ways which inflation can be measured, through calculating the consumer price index (CPI) or the gross domestic product (GDP).
The CPI method was chosen out of these two indicators because it is more accurate as the data comes out every 3 months which is timelier than the GDP data which is calculated annually. In addition, the labour force indicator was chosen to measure unemployment because it will show the total number of people employed or seeking employment in Australia. (L.Kirkwood, 2000)
As for the last economic objective, current account balance was chosen as the indicator to measure external stability because it relates exclusively to Australia’s economic performance globally. The Current account balance for a country could either be a deficit or surplus, depending if their inflows exceed the outflows or the other way around.
3.0 Advanced industrialised Countries
3.1 Advanced industrialised countries – G20
The Group of Twenty (G20) is a group or premier forum for the international economic cooperation. The G20 group is an informal group of 19 countries and the European Union, with representatives of the international Monetary Fund and the World Bank. The G20 group began meeting in 1999 to discuss global economic issues like the global financial crisis and the Eurozone Sovereign Debt Crisis (University of Toronto, 2012).
The G20 group have continued to meet annually in order to discuss and plan ways to strengthen the global economy, reforming international financial institutions and improving financial regulations. Some countries part of this G20 group are; Argentina, Australia, Germany, Japan, Russia, Korea, United Kingdom and the United States. These countries are labelled as ‘advanced industrialised countries’ because they are more economically developed through having high levels of development for gross domestic product (GDP), industrialisation and human development index (Australiann Government, 2012).
There are numerous reasons for introducing a common currency. For most EU countries today, the majority of international trade is with other EU members. The euro-zone will become an area of monetary stability in Europe. The new currency removes exchange rate risks from the internal market, cuts the costs of transactions and encourages firms to trade across national borders. It also forces EU ...
3.2 Two advanced industrialised countries – Japan and USA
The two advanced industrialised countries which this report will be comparing Australia’s economic performance to is Japan and the United States. Japan was one of the selected countries for this report because it has a highly industrialised market economy as it is ranked the third-largest in the world in terms of GDP. Japan has a well-educated, industrious work force and its large, affluent population makes it one of the world’s largest consumer markets (Australian Government, 2012).
In addition, the United States was chosen because it is by far the world’s largest economy. Their GDP was measured to be around $14.3 trillion in 2009 which practically represents around one quarter of the global GDP. The United States is a major driver of the global economy and a world leader in terms of international trade and investment, research and development expenditure, stock market capitalisation and its share of large global corporations (Australian Government, 2012).
4.0 Analysis of the Indicators for each country
4.1 Economic Growth
Economic Growth data for all three countries were collected through the “Tradingeconomics” website. These graphs will show the changes in levels of Gross Domestic Product (GDP), serve as an indication of the rate of economic growth in the economy (TradingEconomics, 2012).
4.1.1 Table – All 3 Country’s Economic Growth
Australia | | Japan | | USA |
Quarterly | % in GDP | | Quarterly | % in GDP | | Quarterly | % in GDP |
2010 – Q1 | 2.8 | | 2010 – Q1 | -0.5 | | 2010 – Q1 | -0.5 |
Q2 | 2.7 | | Q2 | 4.8 | | Q2 | 2.2 |
Q3 | 3.3 | | Q3 | 4.4 | | Q3 | 3.3 |
Q4 | 2.7 | | Q4 | 5.4 | | Q4 | 3.5 |
2011 – Q1 | 3 | | 2011 – Q1 | 3.1 | | 2011 – Q1 | 3.1 |
Q2 | 1.2 | | Q2 | -0.3 | | Q2 | 2.2 |
Q3 | 1.1 | | Q3 | -1.7 | | Q3 | 1.6 |
Q4 | 2.1 | | Q4 | -0.5 | | Q4 | 1.5 |
2012 – Q1 | | | 2012 – Q1 | -1 | | 2012 – Q1 | 1.6 |
4.1.2 Graph – All 3 Country’s Economic Growth
To be able to compare Australia’s economic performance with Japan’s and The United States’, data has to be collected for the GDP annual economic growth rate (refer to Table 4.1.1).
Bonds Given today's uncertain economy, many people are taking time to examine various options for their financial future. Different types of investments are investigated and bonds are one of the more popular choices considered. Many of the same people who talk about investing in bonds, however, do not fully understand them nor where they place in the economy. Many individuals believe that they ...
These figures have been taken from the Tradingeconomics website as the data were well displayed and timelier than other websites. They have been classified as timely data as they were measured quarterly each year rather than annually. This gives viewers a better picture of how these 3 countries performed over one year by measuring their annual % change in real GDP (L.Kirkwood, 2000).
After collecting these figures for all 3 countries, they were then transferred into individual to see if the figures were consistent and reliable (refer to Appendix 9.1).
Subsequently, all 3 graphs were then combined into one, to create a clearer picture when comparing all three trend lines (refer to Graph 4.1.2).
From analysing the Graph 4.1.2, it can be seen that red line, representing Japan’s performance has the highest point of 5.4% in the fourth quarter of 2010. Even though, Japan has the highest growth rate over a period of time, it is observed to be not as consistent as the other 2 trend lines because it increases rapidly in 2010 but then drops right down to a low negative1.7% in 2011. This is not a consistent trend line and Japan therefore, does not have the best trend line for economic growth rate.
In looking at The United States’ green trend line on the graph, it seems that their performance has a better constant trend line than the Japan’s as their performance over 2 years did not rise or fall rapidly. However, the best trend line for economic growth rate would be rewarded to the blue trend line representing Australia’s performance as it has the best consistent trend line and their figures were kept in the high, positive area of the graph.
This will have a great affect for the Australian economy as it shows that their percentage change in real GDP has been kept high and in the positive area. This sustained economic growth for the Australian economy could lead to a rise in employment and standard of living for Australians.
4.2 Inflation Rate
Inflation Rate data was also collected from the “Tradingeconomics” website. These figures show the different changes in general prices called the Consumer Price Index (CPI).
The rate of inflation is measured by the annual percentage change in the level of consumer prices. The CPI is a weighted average of the prices of a bundle of commonly purchased consumer items (TradingEconomics, 2012).
4.2.1 Table – All 3 Country’s Inflation Rate
Australia | | Japan | | USA |
Quarters | CPI | | Months | CPI | | Months | CPI |
2011 – J | 2.7 | | 2011 – J | 0 | | 2011 – J | 1.5 |
F | | | F | 0 | | F | 1.6 |
M | | | M | 0 | | M | 2.1 |
A | 3.3 | | A | 0 | | A | 2.7 |
M | | | M | 0.3 | | M | 3.2 |
J | | | J | 0.3 | | J | 3.6 |
J | 3.6 | | J | 0.2 | | J | 3.6 |
A | | | A | 0.2 | | A | 3.6 |
S | | | S | 0.2 | | S | 3.8 |
O | 3.5 | | O | 0 | | O | 3.9 |
N | | | N | -0.2 | | N | 3.5 |
D | | | D | -0.5 | | D | 3.4 |
2012 – J | 3.1 | | 2012 – J | -0.2 | | 2012 – J | 3 |
4.2.2 Graph – All 3 Country’s Inflation Rate
In comparing Australia’s economic performance with Japan’s and The United States’, inflation rate figures from the tradingeconomics website have been collected for the economic objective of internal balance (refer to Table 4.2.2).
The figures for Australia have been measured quarterly each year while the data for Japan and United States were calculated monthly each year. Since the annual change in CPI for these countries have been measured differently from each other, it will be hard to compare all three performances with each other. However, since the figures for Japan and USA were measured monthly each year, this will give a better and more accurate picture of how Japan and USA performed in terms of keeping their inflation rate at a good level each month. The recommended inflation rate for all countries would be between 2-3%.
Through observing graph 4.2.2, it can be analysed that Australia’s trend line had to be recorded differently as it was measured quarterly each year. The blue dots on the graph represent Australia’s annual change in CPI for the past year. All 4 quarters have been kept well above 2% but has gone over the inflation goal of 2-3%. These quarter figures are however, very consistent and keep a good high level of trend.
The next trend line to analyse is the red one which represents Japan’s monthly annual change in CPI for the year 2011. The inflation rate for Japan over the past year has been terrible as the figures have all stayed below 1% and has even entered the negative % change in the level of consumer prices. Therefore, Japan’s inflation rate is below the required percentage of 2-3 because their prices have fallen over the past months.
The USA’s green line on the graph has a very good trend and a decent level for its figures. Its percentage change in CPI has continued to be between 1.5 to 4% over the past year. This shows that their prices have been increasing in 2011.
In comparing, Japan’s and USA’s figures to Australia’s, it seems like USA has a better trend and level for inflation rate. This would affect Australia as imports from USA could be more expensive as their inflation rate is quite high, compared to Australia’s and Japan’s.
4.3 Unemployment Rate
The Unemployment Rate figures are measured as a percentage of the labour force. The difficulties in measuring these data’s are the defining of which people are unemployed or part of the labour force. People who are included in the labour force are people in the age group of 15-64 years old who are willing and able to work (TradingEconomics, 2012).
4.3.1 Table – All 3 Country’s Unemployment Rate
Australia | | Japan | | USA |
Months | % of LF | | Months | % of LF | | Months | % of LF |
2011 – J | 4.9 | | 2011 – J | 4.9 | | 2011 – J | 9.4 |
F | 5 | | F | 4.9 | | F | 9 |
M | 5 | | M | 4.6 | | M | 8.9 |
A | 4.9 | | A | 4.6 | | A | 8.8 |
M | 4.9 | | M | 4.7 | | M | 9 |
J | 4.9 | | J | 4.5 | | J | 9.1 |
J | 4.9 | | J | 4.6 | | J | 9.2 |
A | 5.1 | | A | 4.7 | | A | 9.1 |
S | 5.3 | | S | 4.3 | | S | 9.1 |
O | 5.2 | | O | 4.1 | | O | 9.1 |
N | 5.2 | | N | 4.5 | | N | 9 |
D | 5.2 | | D | 4.5 | | D | 8.6 |
2012 – J | 5.2 | | 2012 – J | 4.6 | | 2012 – J | 8.5 |
4.3.2 Graph – All 3 Country’s Unemployment Rate
By looking at all three lines on the graph above (4.3.2), it can be observed that all three countries have a consistent trend of unemployment rate. These figures will be easier to compare than the inflation rates as all 3 countries were measured monthly each year. This will give a very accurate performance for each country. With comparing the figures for Australia and Japan, both countries seem to have similar percentages of labour force in 2011. Both their figures were around 4.9% to 5.2% which is at an average level compared to USA’s unemployment rate.
The Australian Bureau of Statistics has recently reported that the number of people employed increased by 46,300 to 11,463,900 in January. The increase in employment was driven by increased part-time employment and also an increase in full-time employment. The increase in seasonally adjusted part-time was driven by an increase in female part-time employment whereas the increase full time employment was driven by an increase in male full-time employment.
4.4 Current Account to GDP
The last indicator, Current Account to GDP was also collected from the “Tradingeconomics” website. The Current Account is defined as the inflows and outflows of money resulting from buying and selling goods and services and from earning income in the international market place. If some graphs show negative figures, this means that a deficit has occurred as the outflows exceeds the inflows. Whereas if the figures were all positive then that would mean that a surplus has happened due to the fact that a country’s inflows have exceeded their outflows (TradingEconomics, 2012).
4.4.1 Table – All 3 Country’s Current Account to GDP
Australia | | Japan | | USA |
Annually | CAD | | Annually | CAD | | Annually | CAD |
2008 | -6.2 | | 2008 | 4.8 | | 2008 | -5.1 |
2009 | -4.5 | | 2009 | 3.2 | | 2009 | -4.7 |
2010 | -4.2 | | 2010 | 2.8 | | 2010 | -2.7 |
2011 | -2.6 | | 2011 | 3.6 | | 2011 | -3.2 |
4.4.2 Graph – All 3 Country’s Current Account to GDP
From analysing the Graph 4.4.2, it can be seen that red line, representing Japan’s performance has a very high and positive current account balance to GDP. This means that Japan has a current account surplus which means their economy is heavily dependent on exports revenues, with a high savings rating but weak domestic demand.
With comparing Australia’s and USA’s trend lines, both seem to a consistent trend each year as they both stay in the negative area which is called an current account deficit. It can be observed that the Australian figures have recently been increasing from -6.2% in 2008 to -2.6% in 2011, while Japan’s figures have stayed well above 2% each year.
It has been investigated that when Australia records a strong current account, its GDP expands boosted by exports revenues. Also, Australia’s exchange rate appreciates as investors begin to expect higher interest rates going forward. However, when Australia reports a stronger than expected current account to GDP, it may also lead to economic overheating and a general rise in prices, also known as inflation, which will make Australia’s products less competitive when sold abroad.
5.0 Countries Economic Performance
5.1 Weightings and Ratings
The evaluation for each country’s performance will help determine which country is the best out of the 3. In order to evaluate which country performed better, weightings has had to be allocated to each criterion/economic objective; economic growth, internal balance and external stability.
This process started off by allocating each criterion a weighting which later all 3 weightings have to add up to give a total weighting of 100% (refer to table 5.1.1).
Economic growth was given a weighting of 50% because there are many factors which influence the rate of economic growth. Some factors, such as changes in consumer and business confidence, aggregate demand conditions in the UK’s trading partners, and monetary and fiscal policy, tend to have a mainly temporary effect on growth. The internal balance and external stability were given the same weighting of 25% because these criterions only focus on low inflation, high employment and CAD.
Each criterion was then rated by a number between 1-5, 1 being the lowest and 5 being the highest. The contribution of ratings was done by looking at each graph for these criterions and rating them by analysing the level and trend line for each country. For example; Australia was given a rating of 4 for economic growth because it had a consistent trend line but also a high level of economic rate.
5.1.1 Table – Weightings Table
Criterion | | Australia | Japan | United States |
| Weighting | Rating | Rating | Rating |
Economic Growth | 50% | 4 | 2 | 3 |
Internal Balance | 25% | 3 | 3 | 4 |
External Stability | 25% | 4 | 2 | 4 |
Total | 100% |
5.1.2 Table – Weighted Rating Table
Criterion | Weighting | Australia | Japan | United States |
| | Rating | Wtd Rating | Rating | Wtd Rating | Rating | Wtd Rating |
Economic Growth | 0.5 | 4 | 2 | 2 | 1 | 3 | 1.5 |
Internal Balance | 0.3 | 3 | 0.9 | 3 | 0.9 | 4 | 1.2 |
External Stability | 0.2 | 4 | 0.8 | 2 | 0.4 | 4 | 0.8 |
Total | | | 3.7 | | 2.3 | | 3.5 |
5.2 Weighted Ratings
After assigning all the ratings to each criterion for all 3 countries, the rating then had to be multiplied to the weightings to give an overall weighted rating result. For example; the economic growth weighting of 0.5 (50%) has to be multiplied with the rating of 4 which gives a weighted rating of 2.
The overall total Wtd Rating will help evaluate if the Australian economy has performed no better or wore than the other 2 advanced industrialised countries.
From analysing the table 5.1.2, the overall total weighted rating for Australia was 3.7 while Japan came to an overall of 2.3 and USA received a total of 3.5. Therefore, the highest total weighted rating was given to Australia which means their economy has performed slightly better than the other 2 countries.
6.1 Australia’s Overall Economic Performance
Now, to answer the most important question from the start of this report was if, “the Australian economy performed better or worse than other advanced industrialised country in the climate of many global uncertainties?”
The overall conclusion for this report is that the Australian economy has performed slightly better than the other two advanced industrialised countries. From comparing all the data’s, graphs and weighted ratings for Australia, Japan and USA, it seems like Australia has concluded to be better than the other 2 countries despite all the uncertainty surrounding the global financial crisis fall out in the US, the sovereign debt crisis in Europe and the declining economic growth in China and India. This illustrates how the Australian economy can continue to achieve the 6 economic objectives despite being affected with uncertainties around the world.
1. Australian Government. (2012).
Japan country brief. Retrieved February 12, 2012 , from Australian Government – DFAT: http://www.dfat.gov.au/geo/japan/japan_brief.html
2. Australian Government. (2012).
United States of America country brief. Retrieved February 12, 2012, from Australian Government – DFAT: http://www.dfat.gov.au/geo/us/us_brief.html
3. Australiann Government. (2012).
The g20. Retrieved February 10, 2012, from Australian Government – DFAT: http://www.dfat.gov.au/trade/g20/index.html#representation
4. European Debt Crisis. (2012).
Facts about The European Debt Crisis. Retrieved February 9, 2012, from European Debt Crisis:
5. Global Uncertainties. (2012).
The Issues. Retrieved February 10, 2012, from Global Uncertainties: http://www.globaluncertainties.org.uk/issues/
6. L.Kirkwood. (2000).
Contemporary economic management. In L.Kirkwood, Economics for the real world 2. Sydney: Pearson – Education Australia.
7. MyMoneycalculator. (2011, September 14).
The European Sovereign Debt Crisis Explained. Retrieved February 9, 2012, from MyMoneycalculator.com.au: http://www.mymoneycalculator.com.au/the-european-sovereign-debt-crisis-explained-greece-and-co/
8. TradingEconomics. (2012, February).
Retrieved February 2012, from TradingEconomics: http://www.tradingeconomics.com/
9. University of Toronto. (2012).
The G20. Retrieved February 12, 2012, from G20 Information Centre: http://www.g20.utoronto.ca/g20whatisit.html
8.1 Graphs for Economic Growth (All 3 Countries)
8.2 Graphs for Inflation Rate (All 3 Countries)
8.3 Graphs for Unemployment Rate (All 3 Countries)
8.4 Graphs for Current Account Balance (All 3 Countries)
8.5 Research Notes
Subject: Sovereign Debt
Keywords: debt, money owed, crisis, invest, bonds
* Definition: Sovereign debt is the term used to describe money owed not by a nation but by a nation’s government. It’s the source of the current debt crisis.
* Bonds Governments issue bonds to finance their debt. Those purchased by its own citizens constitute a domestic debt while those borrowed overseas from non-residents are an external debt.
* Is sovereign debt bad? Government debt is constantly refinanced and investors accept it because the money is invested in health, education, infrastructure and wars, which tend to be economically beneficial.
* Fixing the debt? The first option is economic growth. If GDP is increasing at a rate faster than the increase in national debt, although the debt is rising in absolute terms, as a percentage of GDP it’s falling.
* Governments actually invest the money into health, education, infrastructure and wars which is apparently economically beneficial.
* Government debt is not a total disaster, it can be fixable.
Keywords: interest, creditor, debtor, coupon
* Definition: A bond is a formal contract to repay borrowed money with interest at fixed intervals (semi annual, annual, sometimes monthly).
* A bond is like a loan: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest.
* Bonds provide the borrower with external funds to finance long-term investments or in the case of government bonds, to finance current expenditure.
* Governments issue bonds when they need to borrow money.
Subject: Sovereign Debt Crisis in Europe
Keywords: debt, crisis, region, economic growth
* Five of the region’s countries – Greece, Portugal, Ireland, Italy, and Spain struggled to pay the debts it has built up in recent decades.
* The European sovereign debt crisis started in 2008
* They failed to generate enough economic growth to make their ability to pay back bondholders the guarantee it’s intended to be.
* The head of the Bank of England referred to this debt crisis as “the most serious financial crisis at least since the 1930s, if not ever,” in October 2011.
* The debt crisis led to a crisis of confidence for European businesses and economies.
* This sovereign debt crisis has grown into the biggest challenge the European Union has faced.
* This crisis has affected a lot more than just a few nations across Europe.
* The impact of the crisis was felt worldwide, and the main thing here is that it’s attributed to many factors. It was a boiling point situation that did not occur because of just one event.
Subject: Real and Nominal Gross Domestic Product (GDP)
Keywords: Real GDP, inflation, accurate, economic growth, goods and services
* Definition of GDP: Total value of final goods and services produced within an economy in a specified period of time.
* Changes in levels of GDP serve as an indication of the rate of economic growth in the economy and they allow the government to identify and perhaps forecast periods of boom, recession or stagnation in the economy.
* Definition of Real GDP: Real GDP is a measure of the Gross Domestic Product of a country that is not affected by inflation.
* Real GDP takes out the effects of price increases. This allows us to compare the economy’s production for each quarter more accurately. Otherwise, it might seem like the economy is producing more when it’s just higher prices.
* Nominal GDP is the measurement that leaves inflation in the estimate. Therefore, it’s usually higher than real GDP.
* Importance of Real GDP: Real GDP is important for two reasons. First, it tells you how much the economy is producing. The GDP components tell you what parts of the economy are contributing the most. Real GDP can also be used to compare the size of economies throughout the world.
* Real GDP is also used to compute economic growth, known as the GDP growth rate. This is calculated by comparing each quarter to the previous one. If real GDP were not used, then you wouldn’t know whether it was real growth, or just price and wage increases.
* Real GDP can then be used to determine if the country’s economy is growing more quickly or more slowly than the quarter before, or the same quarter the year before. In this way, you can tell where the economy is in the business cycle. The ideal GDP growth rate is between 2-3%.
* Real GDP is calculated by subtracting nominal GDP by the amount of inflation of that year.
* Real GDP is more accurate to use then GDP because real GDP takes inflation into account. Real GDP is normally considered the better measure of GDP.
* Real and Nominal GDP are essentially the same thing, although real GDP is a truer reflection of a nation’s economy.
* Real GDP values the production of goods and services at constant prices and nominal GDP values them at their current prices.
Sources: Economics for the real world 2 textbook, pg 5.
Subject: Economic Growth
Keywords: Production, increase, rate, labour force, capacity
* Definition: Sustained increase in the productive capacity of an economy, usually indicated by the increased availability of goods and services in the economy.
* Economic Growth is probably the most widely used indicator of economic performance. It is said to exist when an economy improves capacity and, as a result, is able to supply its citizens with more goods and services.
* EG is important because it helps to ensure that there is a balance between output of the economy and growth of the labour force, so that there will be neither a shortage nor a surplus of labour. As well, economic growth can significantly contribute to the standard living of the community.
* Many factors influence the rate of economic growth. Some factors, such as changes in consumer and business confidence, aggregate demand conditions in the UK’s trading partners, and monetary and fiscal policy, tend to have a mainly temporary effect on growth.
* Other factors, such as the rates of population and productivity growth, have more enduring effects, and help to determine the economy’s average growth rate over long periods of time.
* Economic growth is best defined as a long-term expansion of the productive potential of the economy.
* Sustained economic growth should lead higher real living standards and rising employment.
* Short term growth is measured by the annual % change in real GDP.
* There are many factors which influence the rate of economic growth.
Sources: Economics for the real world 2 textbook, pg 3 & 4.
Subject: Internal Balance
Keywords: full employment, low inflation
* Definition: State of the economy when there is full employment and little or no inflation.
* Internal balance may be characterized by both full employment and low inflation, though not all economists believe this is possible.
* Maintaining internal balance is considered sustainable.
* Internal Stability simply means low inflation and high employment.
Sources: Economics for the real world 2 textbook, pg 3 & 4.
Keywords: prices increase, CPI, GDP, measured 2 ways, timelier
* Definition: Inflation is when the prices of most goods and services continue to creep upwards. It is measured by the Consumer Price Index (CPI).
* There are 2 ways of measuring inflation; CPI or GDP.
* Inflation = Change in CPI x 100%
* The data for CPI comes out every 3 months while GDP figures are generated once a year.
* Inflation is usually a result of overheated economic growth, sometimes caused by irrational exuberance. It is also caused by a glut of capital in the market chasing too few opportunities. This happens when there is too much liquidity, which is excess dollars or credit.
* Most countries’ central banks will try to sustain an inflation rate of 2-3%
* Since the GDP figures only come out once a year, this way of measuring inflation is not very useful and practical to use.
* The CPI data seems timelier and sooner after the event (3 months), therefore, measuring inflation by CPI is more popular than GDP.
* Countries try to achieve an inflation percentage between 2-3%.
Q1 – January, February, and March
Q2 – April, May, and June
Q3 – July, August, and September
Q4 – October, November, December
Australia – GDP Growth Rate http://www.tradingeconomics.com/australia/gdp-growth
| % in GDP |
2010 – Q1 | 0.9 | 2011 – Q1 | 0.8 |
Q2 | 0.6 | Q2 | -0.7 |
Q3 | 0.6 | Q3 | 1.4 |
Q4 | 0.3 | Q4 | 1 |
Japan – GDP Growth Rate http://www.tradingeconomics.com/japan/gdp-growth
| % in GDP |
2010 – Q1 | 1.9 | 2011 – Q1 | 0 |
Q2 | 1.6 | Q2 | -1.8 |
Q3 | 1.1 | Q3 | -0.4 |
Q4 | 0.5 | Q4 | 1.7 |
| | 2012 – Q1 | -0.6 |
USA – GDP Growth Rate http://www.tradingeconomics.com/united-states/gdp-growth
| % in GDP |
2010 – Q1 | 3.8 | 2011 – Q1 | 2.3 |
Q2 | 3.9 | Q2 | 0.4 |
Q3 | 3.8 | Q3 | 1.3 |
Q4 | 2.5 | Q4 | 1.8 |
| | 2012 – Q1 | 2.8 |
Australia – Inflation http://www.tradingeconomics.com/australia/inflation-cpi
Quarters | CPI |
2010 – Q1 | 2.1 | 2011 – Q1 | 2.7 |
Q2 | 2.9 | Q2 | 3.3 |
Q3 | 3.1 | Q3 | 3.6 |
Q4 | 2.8 | Q4 | 3.5 |
| | 2012 – Q1 | 3.1 |
Japan – Inflation http://www.tradingeconomics.com/japan/inflation-cpi
Months | CPI | July | 0.2 |
2011 – January | 0 | August | 0.2 |
February | 0 | September | 0.2 |
March | 0 | October | 0 |
April | 0 | November | -0.2 |
May | 0.3 | December | -0.5 |
June | 0.3 | 2012 – January | -0.2 |
USA – Inflation http://www.tradingeconomics.com/united-states/inflation-cpi
Months | CPI | July | 3.6 |
2011 – January | 1.5 | August | 3.6 |
February | 1.6 | September | 3.8 |
March | 2.1 | October | 3.9 |
April | 2.7 | November | 3.5 |
May | 3.2 | December | 3.4 |
June | 3.6 | 2012 – January | 3.0 |
Australia – Unemployment http://www.tradingeconomics.com/australia/unemployment-rate
Months | % of LF | July | 4.9 |
2011 – January | 4.9 | August | 5.1 |
February | 5.0 | September | 5.3 |
March | 5.0 | October | 5.2 |
April | 4.9 | November | 5.2 |
May | 4.9 | December | 5.2 |
June | 4.9 | 2012 – January | 5.2 |
Japan – Unemployment http://www.tradingeconomics.com/japan/unemployment-rate
Months | % of LF | July | 4.6 |
2011 – January | 4.9 | August | 4.7 |
February | 4.9 | September | 4.3 |
March | 4.6 | October | 4.1 |
April | 4.6 | November | 4.5 |
May | 4.7 | December | 4.5 |
June | 4.5 | 2012 – January | 4.6 |
USA – Unemployment http://www.tradingeconomics.com/united-states/unemployment-rate
Months | % of LF | July | 9.2 |
2011 – January | 9.4 | August | 9.1 |
February | 9.0 | September | 9.1 |
March | 8.9 | October | 9.1 |
April | 8.8 | November | 9.0 |
May | 9.0 | December | 8.6 |
June | 9.1 | 2012 – January | 8.5 |
Australia – CAD http://www.tradingeconomics.com/australia/current-account-to-gdp
| CAD |
2008 | -6.2 |
2009 | -4.5 |
2010 | -4.2 |
2011 | -2.6 |
Japan – CAD http://www.tradingeconomics.com/japan/current-account-to-gdp
| CAD |
2008 | 4.8 |
2009 | 3.2 |
2010 | 2.8 |
2011 | 3.6 |
USA – CAD http://www.tradingeconomics.com/united-states/current-account-to-gdp
| CAD |
2008 | -5.1 |
2009 | -4.7 |
2010 | -2.7 |
2011 | -3.2 |