MAE203 The Global Economy - Free Samples to Students

The monetary value of nation output is measured using Gross Domestic Demand. In computation of GDP the market price of the goods or services are required along with their volume. In case of nominal GDP, goods are valued in current prices. When output is valued in at a constant fixed year prices, then it is called real GDP. As a fixed base year is used in computing real GDP, the output value is adjusted for inflation giving a more accurate measure of output (De Vroey 2016). An increase in nominal GDP cause an increase or decrease in real GDP depending on the price level.

In Australia, both the nominal and real GDP increases overtime indicating an increase in overall output and economic expansion. With a greater control over the level of prices, the nominal and real GDP gradually approaching towards each other. The measure of trend growth rate shows that nominal GDP grows faster than real GDP. The deflationary pressure caused by a unfavorable terms of trade contributes to an increases in real GDP growth rate to catch up the nominal GDP growth. 

Table 1: Unemployment, inflation, gross capital formation and expense in Australia

(Source: data.worldbank.org)

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

(Source: data.worldbank.org)

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

(Source: data.worldbank.org)

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

(Source: data.worldbank.org)

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

(Source: data.worldbank.org)

Gross capital formation shows the additional changes in the net physical assets of a nation. In an economy government undertakes several expenditures to support the nation which are measured as a percentage of GDP. Unemployment reflects the status of labor market. All the three are important indicators of macroeconomic performances (Heijdra 2017).

An overtime changes in the three indicators are taken into consideration for the five nations namely Australia, China, Japan, South Korea and United Kingdom. In the list some are already developed while some are developing. Starting with Australia, gross capital formation has increased steadily overtime. In the development process of Australia government has a significant contribution as reflected from an increasing share of government expenditure in GDP. The unemployment has accounted a gradual declining trend with unemployment rate being approximate 5% in 2016. For United Kingdom, gross capital formation has slowed down. The stable growth rate thus needs support from government. The percentage share of government expenditure has remained at a high level helping to reduce unemployment to 4% in 206 from 8% in 1991. China has recorded a stable unemployment rate of 4% with a high share of government expenditure and gross capital formation. In Japan, government expense does not show any significant and gross capital formation also shows a declining trend. The unemployment rate though decreases recently but is higher than that in 1991. For South Korea, gross capital formation declines overtime with a slow progress of the share of government expense. As like Japan, South Korea also though the unemployment rate declines in recent years but it is higher than the initial level.

A comparative analysis now can be made based on the performance of these indicators. In the developed nations like Australia and United Kingdom, share of government expense is much higher than that in China, Japan and South Korea. Despite a small share of government expenditure, the unemployment rate in these three nation is either same or lower than that in Australia and United Kingdom. The gross capital formation follows an increasing trend for china and Australia while the rest three shows a declining trend.

The relative price of currency or exchange rate determines the state of trade balance in the external sector. A deprecated currency means a lower relative price of export. This can lead to a trade surplus by making export of these nations more attractive to the importing nations. A trade deficit on the other hand might be the result of a currency appreciation (Uribe and Schmitt-Grohé 2017). Except in the months of 1991, the of Australian dollar mostly appreciates against Japanese Yen. The trade balance thus moves to the opposite direction of exchange. For China the AUD depreciates slightly in recent years causing an increase in Australian export to China’s market. With UK, the exchange rate fluctuates around 0.4 and hence, has a much less contribution to Australia’s trade balance as compared to two other nations.

Aggregate Expenditure model 

The aggregate expenditure model connects the planned expenditure in an economy with the level of real GDP. The aggregate expenditure shows planned expenditure which is the sum of consumption (C), Investment (I). Government expenditure (G) and net export (NX).

AE = C + I + G + NX

Fiscal policy like changes in tax or government expenditure influence aggregate expenditure leading to a change in real GDP (Rzepczynski 2017). The likely impact of a decline in taxes is described in the figure below.

The upward sloping curve AE represents aggregate expenditure. The macroeconomic equilibrium lies on the 45⁰ line. On this line all the points equal to aggregate expenditure which is required for equilibrium (Heijdra 2017). A tax cut of 20 billion increases aggregate expenditure. Any decline in the tax rate offers household a greater disposable income and hence, aggregate expenditure increases. However, as the marginal propensity to consume is less than 1, aggregate expenditure shifts by only a proportion of the tax. The aggregate expenditure hence shifts by a magnitude less than $20 billion. The new aggregate expenditure is shown by the line AE_1. The economy attains its new equilibrium point at E_1. Under the new scenario, output expands to become Y_2.

In order to determine the exact magnitude of change in real GDP or aggregate expenditure, information about marginal propensity to consume needs to be known. It is given that marginal propensity to save is 0.2. From this, the marginal propensity to consume can be derived as (1 – MPS) = (1 – 0.2) = 0.8. With a value of MPC 0.8, a tax cut of $20 billion shifts the aggregate expenditure curve by (0.8*$20 billion) = $16 billion. Using the multiplier effect, increases in real GDP is determined as (MPC/MPS) *$20 billion = (0.8/0.2) * $20 billion = $80 billion.

The dynamic aggregate demand and aggregate supply model is an extension of basic aggregate demand and aggregate supply model. The dynamics of potential output and price level changes following an aggregate demand or aggregate supply shocks. However, in the dynamic process once the shock recovers, the economy moves back to its original position (Mankiw 2014). The economy is in a long run equilibrium at point A. At this point aggregate demand and both short run and long run aggregate supply curve meet. Now, a decline in investment causes a downward shift in aggregate demand curve to AD₂.  The economy now moves to point B with a lower output and inflation. The low level of inflation by reducing expected production cost shifts the aggregate supply curve downward to SRAS_1. If the shock persists in the long run, then equilibrium is set at C, with potential output remaining the same at Y_E but at a lower expected price level. However, once the shock recovers the aggregate demand curve moves back to its original position rising the expected price level (Uribe and Schmitt-Grohé 2017). This then shifts the aggregate supply curve upward. The dynamic adjustment process continues unless it reaches to the initial position.

Policy action of central bank 

In order to overcome the adverse demand shock central bank would take an ease monetary policy. The objective of the central bank is to lower the real and nominal interest rate and encourages investors to invest in the economy. For this, the central bank would purchase financial assets instrument through open market operation. Another instrument that central bank would use under this circumstances is the discount rate (Ehnts 2016). The central bank would reduce the rate to provide commercial banks a greater flexibility of loan and hence, stimulates investment.

In the current period, the subject economics has flourished hugely and its importance have been felt in almost all the sectors of the global scenario. This in turn has created a number of opportunities and scopes for future economists in the professional life, where they can explore and enhance their knowledge and quality and can also build shining career. Personally, as a budding economist, I want to stay in academic sector in my professional life. In future I want to be a faculty of economics in any prestigious college in Australia. I don’t have any one or two personal preference about the colleges in which I want to teach. I want to be attached with a prestigious academic institution.

Economics Teacher: Roles and Skills required 

In general, a teacher has several crucial roles to play in the life of the students which include building up their knowledge about the subject, making them able to think out of the box and come out with new ideas and also to keep the students intrigued and eager to learn more by making the subjects relevant, relatable and interesting to them. In this context, economics being a subject of huge relevance and with unlimited scopes of exploration and innovations, it becomes one of the primary responsibilities of economics teachers to teach the subject to the students in such a manner that they grow the ability to learn, research, explore and interpret.

Thus, to be a successful teacher of this subject, the primary skills which are required to be present are as follows:

• Great communication skills
• In depth knowledge
• Ability to think and bring out new ideas
• Ability to think from the perspectives of the students
• Zeal to research and develop new techniques for teaching so as to keep the students interested
• Unbiasedness
• Passion for the profession

Being someone who is extremely passionate about the subject itself and about teaching as a profession, I personally believe that I have most of the qualities of becoming a good economics teacher.

Personal attraction towards the job 

The chosen position of an economics faculty appears to be extremely attractive to me as I can link the attributed with my personal attributes which are as follows:

Values- Personally I value flexibility, balanced work hours and to some extent autonomy, stability and freedom in the workplace, which are highly present in this type of jobs.

Interests- I feel interested in communicating with new people and exploring new ideas, which I can do in this type of job.

Personality- I have a free-thinking, stability-loving personality which is attracted to a stable and balanced life.

Skills- I have a communicating personality who can strike up conversations with anyone. I can also assess the thought process of other people and I always try to engage myself in finding and exploring new arenas.

All these individual traits in me makes the job of a teacher more relevant for myself.

The video I watched, was an interview with an individual named Anjali Suriyakumaran. Anjali, a former economics graduate and a current analyst in ACCC, talks to the future economists in the video, which highlights several interesting aspects which are quite relevant for the current economics students.

Firstly, Anjali asserts that being an economist in the current days are profitable and of huge scopes as there are multiple jobs in many industries. Anjali also highlights the importance of involving in various career oriented as well as social engagements, during the student life, in order to develop specific skills in life. She herself was engaged in several social committees and also did a full-time internship during her college days, which she asserts to have developed her time management, work management and multi-tasking skills. Anjali asserts that these experiences are extremely for the budding economists in order to make them ready for professional lives. For landing a successful internship and job in future, she recommends the students to get in touch with their seniors for proper guidance.

After watching the video concerned, I realised that I have only taken a few baby steps towards achieving my dream career in future. While I have several inherent qualities to be a teacher and I have also acquired considerable knowledge about the subject, I need to develop my teaching skills and I need to take some professional courses for teaching in order to be eligible for becoming an economics teacher in the country. Completing a part time or full time internship in this domain may also increase my eligibility to work as a teacher, as a part of the economics faculty in the prestigious educational institutions of Australia.

References

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 3 May. 2018].

Abs.gov.au. (2018). Australian Bureau of Statistics, Australian Government. [online] Available at: https://www.abs.gov.au/ [Accessed 3 May. 2018].

Data.worldbank.org. (2018). Indicators | Data. [online] Available at: https://data.worldbank.org/indicator [Accessed 3 May. 2018].

De Vroey, M., 2016. A history of macroeconomics from Keynes to Lucas and beyond. Cambridge University Press.

Ehnts, D.H., 2016. Modern monetary theory and European macroeconomics. Routledge.

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

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 3 May. 2018.

Rzepczynski, M.S., 2017. The Econometric Analysis of Recurrent Events in Macroeconomics and Finance. Financial Analysts Journal, 73(3), pp.133-134.

Uribe, M. and Schmitt-Grohé, S., 2017. Open economy macroeconomics. Princeton University Press.