Economics

 

Economics
Prepare a report on the current state of the Australian economy and its management by the Federal government. You need to do this by examining the four economic indicators of economic growth (GDP), unemployment, inflation and trade (including the terms of trade, the current account, net foreign debt and the value of the Australian dollar). In your report you are expected to outline the target values for these economic indicators as well as the trend in these economic indicators over the last 10 years. Finally, you should outline the current macroeconomic policies of the Federal government and RBA where you think these policies may relate to these four economic indicators and comment on whether you see these policies as suitable in the present economic environment. Given your analysis, you are expected to conclude your report with policy recommendations to achieve targeted economic growth, unemployment, inflation and trade outcomes.
Presentation of report
The report should not exceed 1500 words. This word limit does not include the abstract, tables, graphs and reference list.
The report should be word processed using a font size 12 with 1.5 line spacing.
Structure of report
Your report must include:
• an appropriate title
• an abstract (sometimes called an executive summary) summarising the report
• an introduction in which you briefly explain what you are going to address in the report and why
• the body of the essay broken into sections (section headings are appropriate)
• a brief conclusion that should summarise your analysis and your predictions and recommendations
• appropriate referencing and a reference list as required.
Although the requirements for presentation and structure may appear pedantic, they are not. In the business world you may often find yourself involved in writing a report – perhaps even for multilateral and government organisations such as the IMF or OECD. We suggest that you devote some time to developing this skill. Your future career can only be enhanced by your ability to communicate effectively in writing.

Marking criteria Assignment 2
Your report will be marked against the following criteria:
• Appropriate description of the four economic indicators- economic growth, unemployment, inflation and trade and the trend in these indicators over the last ten years.
(20 marks)
• Succinct description of current macroeconomic policy in Australia and appropriate assessment of its effectiveness.
(40 marks)
• Useful conclusions and recommendations about the future direction of policy including threats to current policy settings.
(20 marks)
• Evidence in the report of a depth of research and accuracy in referencing (Harvard Style).
(10 marks)
• Abstract, presentation, grammar, structure, etc.
(10 marks)

TOTAL FOR ASSIGNMENT 2: 100 marks (weighting 25% of total marks for the unit)

Some advice about Assignment 2
Your short “Abstract” needs to describe the aim of the report and a brief overview of the economic targets, government policy and recommendations. It should be approximately 500 words.

The “Introduction” is a brief paragraph or two that outlines the aim of the report and how the report is structured (i.e., what you are examining). The content of your assignment should generally reflect the marking criteria. REMEMBER that an Introduction is different to an Abstract.

The “body” of the report is the content of your research and analysis. You may want to consider dividing you report into different sections with appropriate subheadings.

You should begin the body of your work with a discussion of the current values of the four economic indicators under investigation (Economic Growth (GDP), Unemployment, Inflation and Trade) and the government targets for each of these. You should also discuss the trends in the economic variables over the past 10 years. This section is worth 20%.

Once you have discussed the variables you should discuss current macroeconomic (Fiscal and Monetary) policy in Australia. In addition to a description of policy you need to provide your assessment of the effectiveness of the policy. The effectiveness of macroeconomic policy will be determined by how close the current figures are to policy targets. For example, did Australia reach targets or not and/or how close has Australia been to meeting targets? You NEED to give your (well thought out) opinions about how well current macroeconomic policy is working based on the data obtained. You need to support your opinions with scholarly research to further enhance/prove/justify/confirm your findings. This section is worth 40%.

In your “Conclusion” you need to discuss what the future is for the economy (the strengths and/or threats) as well as canvass the policies you would recommend to ensure meeting the economic targets. You should again call upon scholarly research to further enhance/prove/justify/confirm your commentary in this section. This section is worth 20%.

A reminder: To complete your assignment you need to ensure you have used correct Harvard referencing throughout the report and that you have correctly formatted your reference list. Only include the references that you actually used in your report. This section is worth 10%.

You should check your “turnitin” value before submitting your assignment. A value of over 50 per cent should be of concern to you.

There are a number of useful resources you can use to gather information but make sure you are using reliable sources. Useful sources of information might include the following web sites:
• Australian Bureau of Statistics < http://www.abs.gov.au>
• The Reserve Bank of Australia <http://ww.rba.gov.au>
• Treasury <http://ww.treasury.gov.au>
• Department of Finance <http://ww.finance.gov.au>
• The Productivity Commission <http://www.pc.gov.au>
• The World Trade Organization <http://www.wto.org>
• ABC News <http://www.abc.net.au/news/>
Some newspaper sites may also be useful. For example, the Australian Financial Review, the Sydney Morning Herald, the Australian, the Guardian and other major newspapers. The editions around the time of economic policy announcements are especially useful.

You will also need to look closely at some recent budgets that are usually brought down in May (details can be found at http://www.budget.gov.au) and monetary policy announcements about interest rates can be found at http://www.rba.gov.au. The RBA’s quarterly statement on monetary policy is also a very useful source of information on the economy and its status.
ECO10250 Economics 2014: Assignment No. 2 Answer sheet
Criteria Marks
Abstract presentation, grammar, structure, etc. /10

Succinct description of current macroeconomic policy settings in Australia. /15

Macroeconomic policy

Monetary policy

The cash rate has been a low 2.5% for nine months. The interest rate reflects the fact there is little inflationary pressure with the rate remaining between 2 to 3%. One aspect of possible concern is that there have been considerable growth in house prices. Interest rates are expected to remain unchanged for the rest of the year.

Fiscal policy

The pre-2014 budget commentary indicates that the Government’s priority is to address the budget deficit. In 2008/9, the budget moved into a deficit for the first time in a number of years. The deficit occurred as a result of an expansionary budget introduced to address the Global Financial Crisis. Since that time the budget has continued to remain in deficit, with an expected budget deficit of $18 billion in 2013-14.

In 2014-15, it is expected that there will be cuts in expenditure in a number of areas. If the cuts are too severe some commentators suggest that it is likely that there will be a reduction in GDP, an increase in unemployment and a fall in business and consumer confidence.

Trade policy

In 2013-14, trade policy focused on strong bilateral relationships with a particular focus on Asian markets. There were two free trade agreements signed- one with Korea and one with Japan. An agreement with China is also being pursued.

Targets for GDP, unemployment, inflation and trade.

Not all areas have specific target like that for inflation (between 2 and 3%) however a GDP rate of between 3-4% would be considered satisfactory, the Natural Rate Unemployment (NRU) would be considered to be between 4.75 – 5.25% and a stable trade sector is also the target of government.

Appropriate analysis of policies in terms of trends for economic growth, unemployment, inflation and trade. /45

Trends

GDP
Target: GDP would be about 3-4% growth per annum.

2013: GDP Annual Growth Rate 2.3%. It is expected to be 2.5% in 2014.

Trend:
There has been 22 years of continuous GDP growth. GDP Annual Growth Rate averaged 3.48% between 1960 until 2013.

Table 1: Annual GDP Growth, 204-12.

Year % increase
2004
2005
2006
2007
2008 2.4
2009 1.5
2010 2.6
2011 2.4
2012 3.7
2013 2.3

Source: Australian Bureau of Statistics (Cat. No. 5206.0)

Unemployment

Target: Natural Rate Unemployment (NRU): 4.75 – 5.25%.

2014: March 2014 – 5.8%.

Trend:
Unemployment has ranged from a high of 5.9% and a low of 4.5% between 2004 and 2013. This range has been mostly within or close to NAIRU range.
Table 2: The Unemployment Rate, 2004-14.

Year %
Jan – 2004 5.6
Jan – 2005 5.1
Jan – 2006 5.1
Jan – 2007 4.5
Jan – 2008 4.2
Jan – 2009 5.0
Jan – 2010 5.4
Jan – 2011 5.0
Jan – 2012 5.2
Jan – 2013 5.4
Jan – 2014 5.9
Feb – 2014 5.9
Mar – 2014 6.0
Source: Australian Bureau of Statistics (Cat. No. 6202.0)

Inflation

RBA target between 2 & 3%.

March quarter 2014 – 2.9%

Trend:
The annual inflation rate has mostly been in the target range since 2004. There have been no interest rates increases by the RBA recently because inflation has been under control.

Table 3: The Inflation Rate, 2004-13.

Year % an increase
2004 2.3
2005 2.7
2006 3.3
2007 2.3
2008 4.4
2009 1.7
2010 2.9
2011 3.3
2012 1.7
2013 2.5

Source: Reserve bank of Australia

Trade

Target: Stability in the Current Account, Net Foreign Debt and value of the Australian dollar.

$AUS:

Trend: The Australian dollar was considered too high in 2012-13 and was hurting our exports especially those in the manufacturing sector. The dollar has been high as a result of the buoyancy of the export sector.

Table 4: The value of the Australian dollar (against US), 2004-14.

Jan 2004 0.7717
Jan 2005 0.7668
Jan 2006 0.7505
Jan 2007 0.7826
Jan 2008 0.8823
Jan 2009 0.6754
Jan 2010 0.9127
Jan 2011 0.9962
Jan 2012 1.0415
Jan 2013 1.0500
Jan 2014 0.8858
April 2014 0.9330
Current account

Target:

Current: In 2013 the CAD was 2.9% Gross Domestic Product (GDP).
Trend: Between 1960 and 2013 the Current Account to GDP in Australia averaged a deficit of 3.2%; rising from a deficit of 2.8% of GDP in 2000-01 to a high of 6.5% of GDP in early 2008. The global financial crisis caused economic growth to slow down, imports fell and the current account fell rapidly. By the end of 2009 the CAD had fallen to around 3.4 % of GDP.

Table 5: The Australian Current Account, 2004-13.

Mar-2004 -12177
Mar-2005 -15458
Mar-2006 -14233
Mar-2007 -16865
Mar-2008 -20449
Mar-2009 -7561
Mar-2010 -16910
Mar-2011 -9447
Mar-2012 -13458
Mar-2013 -13245
Dec-2013 -11054

Terms of Trade

Current: Terms of trade was 88.10 Index Points in November, 2013.
Trend
Table 6: The Terms of Trade Index, 2004-13.

Year Terms of trade: Index
Mar-2004 58.6
Mar-2005 63.8
Mar-2006 71.3
Mar-2007 76.7
Mar-2008 80.4
Mar-2009 85.8
Mar-2010 82.5
Mar-2011 103.4
Mar-2012 97.8
Mar-2013 89.7

Source: Source: Australian Bureau of Statistics (Cat. No. 5206.0)

Net Foreign Debt

Table 7: Net Foreign Debt, 2004-13.

Year Net Foreign Debt ($m)
Mar-2004 366646
Mar-2005 411726
Mar-2006 478186
Mar-2007 527407
Mar-2008 600213
Mar-2009 660955
Mar-2010 660490
Mar-2011 725829
Mar-2012 725829
Mar-2013 764069
Dec-2013 852871
Useful conclusions and recommendations about the future direction of policy including threats to current policy settings. /20
There are no right or wrong answers for this section – students needed to justify their conclusions and recommendations.

Evidence in the report of a depth of research and accuracy in referencing (Harvard Style). /10
TOTAL /100