MAE20 The Global Economy For Inflation, Unemployment And Gross Capital Formation

Nominal GDP of nation represents the monetary values of all goods and services produced in a year where goods are valued in terms of current market price. Real GDP on the other hand in price adjusted measure of total output in a nation. A fixed base year is used to compute real GDP of the nation. An increase in nominal GDP tend to increases the value of real GDP given the price level is fairly stable (Goodwin et al. 2015). For Australia, the seasonally adjusted real GDP and nominal GDP constitutes a similar upward rising trend. The real GDP lies above the nominal GDP implying a decline in the price level. So far as the growth rate is concerned, similar trend in observed in percentage change in real and nominal GDP. The nominal GDP growth thus has a positive influence on real GDP.

Table 1: Inflation, unemployment, gross capital formation and expense in Australia

(Source: data.worldbank.org)

Table 2: Inflation, unemployment, gross capital formation and expense in China

(Source: data.worldbank.org)

Table 3: Inflation, unemployment, gross capital formation and expense in South Korea

(Source: data.worldbank.org)

Table 4: Inflation, unemployment, gross capital formation and expense in Japan

(Source: data.worldbank.org)

Table 5: Inflation, unemployment, gross capital formation and expense in United Kingdom

(Source: data.worldbank.org)

Different macroeconomic variables are generally interrelated such that change in one variable has influence on other indicators as well. An increases in government expense, if made in favor of physical assets then capital formation rises (Agénor and Montiel 2015). An expansion in capital base in turn creates more employment opportunity and hence reduces unemployment.

In Australia, government expenditure remains at a stable state.  The gross capital formation in the economy an economy shows an upward trend. Gaining support from government expense and capital formation Australia has accounted a steady decline in unemployment rate.  In China, the gross capital formation remain at a fairly stable state which helps to stabilize the unemployment rate. In South Korea, unemployment rate picked during 1998. During this time, the gross capital formation declines as well.  In this nation, the gross capital formation has an overall declining trend. Government expense though increases but the trend shows the expenditure is not in favor of capital investment.  Consequently, unemployment has a slow but increasing trend. In Japan, the decline in expense and capital formation unemployment rises. However in recent year, because of an increase in capital formation an expense unemployment records a slight decline. UK has recorded a steady decline in unemployment rate. The high government expense and stable capital formation contributes to a decline in unemployment.

The relative value of currency plays an important role in determining trade balance of a nation. An increasing value of currency by raising price of exported goods adversely affect trade balance. In times of currency depreciation on the other hand helps to improve trade balance by increasing export (Bernanke, Antonovics and Frank 2015). This relationship between exchange rate and trade balance is evident for Australia’s trade relation with all the three nations. 

In the aggregate expenditure model, fiscal policy tool is used to influence real GDP. Government adjusts taxes or government purchase to counter recession or other economic shocks.

A decline in taxes lead to an increase in government expenditure by raising purchasing power of people. At the initial phase, the increases in consumption following a tax cut is less than the proportion of tax change , the aggregate expenditure shifts by a magnitude less than the changes in tax (Heijdra 2017). The government propose contemplating a cut in tax rate by $20 billion. Given the marginal propensity to consume is 0.2, there will be a rightward shifts of the aggregate expenditure curve by ($20 *0.2) = 4 billion.

AE curve represents the initial aggregate expenditure. The 45⁰ line shows the planned expenditure A cut in tax rate of $20 bn shifts the AE curve up by autonomous taxes of $20 bn times the marginal propensity to consume 0.2. The new aggregate expenditure curve is AE₁. The difference between AE and AE₁ are $4bn. The equilibrium determined at the intersection of actual expenditure and planned expenditure shifts from E to E_1. Corresponding to new equilibrium, the real GDP increases from Y* to Y_1.

The state of macroeconomic equilibrium is determined from the position of aggregate demand and aggregate supply curve. Corresponding to the equilibrium, the real GDP and price level in the economy (Johnson 2017).  The long run aggregate supply curve differs from the short run aggregate supply curve and hence, the adjustment process is different.

There is no difference in the shape of aggregate demand curve in the short run and that in the long run. The downward sloping curve AD represents the long run aggregate demand curve.  In the long run as the economy already reached to the potential level, the aggregate supply curve become vertical (Mankiw 2014). Now, with a decline in investment expenditure the AD curve shifts inward from AD to AD_1. There will be no change in real GDP which stays at Y*. The price level decreases from P* to P₁ as the economy moves from B to A.

In the short run, the low price discourages suppliers in the economy due to the direct relation between price and supply. The short run supply curve in upward rising. The decline in price, causes a leftward shift of the supply curve from SRAS to SRAS_1. The real GDP contracted from Y₁ to Y_2. This helps to recover the price level from P₁ to P₂. In the second run the high price leads to an increases in real GDP gradually which gradually approaches to the long run potential level. 

In the short run aggregate supply curve rises upward.  With a positively sloped supply curve a decline in investment expenditure causes a decline in aggregate demand (Johnson 2017).  At the new equilibrium both real GDP and price level declines.

Over the years, economics has developed considerably as a separate discipline, with the number of prospects and scopes of exploration increasing consistently with opening of new areas for the economists. Being an economic graduate, I, therefore have many options to explore and choose from in my professional life. As a macroeconomist, I have been specifically interested in the areas of banking, finance and financial analytics for the purpose of building future career and professional prospects. The booming commercial, investment and finance activities and the expansion of the global banking sector as well the banking sector of Australia have increased my attraction towards the same even more and I want to work professionally in this area. I personally desire to work for the National Australia Bank, owing to its reputation, performance and employee satisfaction.

The job role which most intrigues me in the banking and financial sector of the National Australia Bank, both in terms of job responsibilities as well as in terms of monetary and career prospects is that of the role of policy analyst. I desire to serve the role of policy analyst in the concerned bank as it is expected to bestow upon me the following responsibilities:

• The duty of exploring the market and policy frameworks existing in the domestic as well as global scenario and finding the pros and cons of those policies
• The responsibility to explore and analyse the prospects and problems in the tie-ups and client-relations of the banks
• To solve the problems arising in the operational framework of the banks in the aspects of their relation with the clients
• To predict the prospects of different schemes designed and implemented by the banks and rectifying the problems in such strategies and schemes
• To recommend the legal pathways for addressing the problems related to the different existing and future policies

For performing these responsibilities, I need to develop my explorative, understanding as well as persuasive skills and expand my domain of knowledge. My writing skills and researching abilities are also important, especially for the purpose of predicting and forecasting the policy implications on the operational framework of the concerned bank.

In the role of a policy analyst, especially in a reputed bank like that of the National Australia Bank, there are huge knowledge building scopes as well as scope of increasing the domain of expertise and I will also get the freedom to use by researching and analysing ability and think out of the box to provide assistance in crucial times.

Values- I can work in flexible shifts and can contribute to the company in many aspects.

Interests- I personally remain intrigued and interested in working with statistical data and in analysing and predicting the trends.  

Personality- I can work in a team as well as an individual and can work in many flexible situations.

Skills- I perceive that I have researching and analysing skills and I also like exploring new facts and I can also perceive the trends of the numerical data as well as the trends and results of implementation of the different policies and can also provide insight for better outcomes in future.

My personality is creative and I can work in any kind of situations can also provide insights for different aspects and statistical trends, which may make me suitable for my desired job roles.

In the concerned video, Jeff Hole emphasizes on the role of the subject of economics in the contemporary period and also highlights the parts which can be played by the economists in such scenarios. The video also provides several useful suggestions for future economists in the aspects of career building. As per Jeff, in the contemporary world economists have plenty of opportunities but there also exists huge confusion among them regarding which opportunity to explore and what is the cost of leaving other alternatives.

Keeping this into consideration, Jeff also advices the future economists to acquire professional skills along with their academic degrees as according to him this may be useful for the purpose of building careers. However, the video lacks in suggesting the organizations or educational as well as commercial enterprises from where the students can acquire their necessary skills.

I have already researched a lot about my desired job role and the criteria to be met for the same. I have also begun to search for the pathways to reach to my desired job role efficiently. However, I still lack professional assistance and guidance regarding the places from where I can get professional experience which in turn may help me in getting by desired job in the organization of my dream.  

Abs.gov.au. (2018). 5368.0 – International Trade in Goods and Services, Australia, Jan 2018. [online] Available at: https://www.abs.gov.au/AUSSTATS/[email protected]/DetailsPage/5368.0Jan%202018?OpenDocument [Accessed 29 Apr. 2018].

Abs.gov.au. (2018). Australian Bureau of Statistics, Australian Government. [online] Available at: https://www.abs.gov.au/ [Accessed 29 Apr. 2018].

Agénor, P.R. and Montiel, P.J., 2015. Development macroeconomics. Princeton University Press.

Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-Hill Higher Education.

Data.worldbank.org. (2018). Indicators | Data. [online] Available at: https://data.worldbank.org/indicator [Accessed 29 Apr. 2018].

Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in context. Routledge.

Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.

Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.

Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.

Reserve Bank of Australia. (2018). Historical Data | RBA. [online] Available at: https://www.rba.gov.au/statistics/historical-data.html#exchange-rates [Accessed 29 Apr. 2018

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